OPINION OF ADVOCATE GENERAL
WAHL
delivered on 12 February 2014 (1)
Case C‑26/13
Árpád Kásler
Hajnalka Káslerné Rábai
v
OTP Jelzálogbank Zrt
(Request for a preliminary ruling from the Kúria (Hungary))
(Directive 93/13/EEC — Unfair terms in consumer contracts — Articles 4(2) and 6(1) — Terms exempt from an assessment of their unfairness — Contractual terms relating to the definition of the main subject-matter of the contract or to the adequacy of the price that are in plain intelligible language — Credit contracts denominated in foreign currency — Difference between the buying rate of exchange and the selling rate of exchange for the foreign currency — Powers of the national court when dealing with a term considered to be unfair)
1. The present case arises against the background of the supply of consumer credit agreements denominated in foreign currency. The use of agreements of this kind, which is a relatively common practice in some EU Member States and which may, at first sight, be regarded as attractive by borrowers because the interest rate is lower than the rate generally applied, has caused problems for many individuals, following the international financial crisis in the 2000s, on account of the sharp depreciation of certain currencies in relation to the foreign currency concerned (in particular the Swiss franc). Those individuals have been required to repay monthly instalments denominated in domestic currency that are much higher than they would have had to pay if the repayments had been calculated on the basis of the historical rate of exchange applicable when the loan was advanced. The setbacks observed have been such that, as a knock-on effect, there has been a significant impact on the banking sector in some Member States. (2)
2. The questions asked in the present case by the Kúria (Hungarian Supreme Court) do not, however, relate directly to the question whether that practice (3) is compatible with EU law or whether the provisions of consumer credit agreements may or must be regarded as unfair simply because they are denominated in non-domestic currencies, but to whether and to what extent the contractual terms concerning the rates applicable respectively to the advance and to the repayment of the loan are among those that escape assessment of their possible unfairness pursuant to Article 4(2) of Directive 93/13/EEC (4) in that, first, they relate to the main subject-matter and/or the quality/price ratio of the services or goods supplied and, second, they are in plain intelligible language. The referring court also asks the Court about the consequences that must, if necessary, be drawn by the national court, under Article 6(1) of Directive 93/13 in particular, if it should find any contractual terms to be unfair.
3. If the questions asked are largely unprecedented in that they seek clarification of the meaning of the notions referred to in the ‘exception clause’ in Article 4(2) of Directive 93/13, the answer to be given will necessarily have to build on the findings made in existing case-law on consumer protection. To this effect, I take the view that a balance must be found in the present case between, on the one hand, the objective of consumer protection pursued by Directive 93/13 and, on the other, the opportunity under Article 4(2) of that directive of safeguarding, to some extent, the principles of freedom of choice and of freedom of contract. More fundamentally, it is necessary, in the light of the highly casuistic nature of the system introduced by that directive, to leave it to the national court to ascertain whether the contractual terms at issue before it are among those of which it may assess whether they are unfair.
I – Legislative framework
A – EU law
4. The twelfth and nineteenth recitals in the preamble to Directive 93/13 state:
‘Whereas, however, as they now stand, national laws allow only partial harmonisation to be envisaged; whereas, in particular, only contractual terms which have not been individually negotiated are covered by this Directive; whereas Member States should have the option, with due regard for the [EEC] Treaty, to afford consumers a higher level of protection through national provisions that are more stringent than those of this Directive;
...
Whereas, for the purposes of this Directive, assessment of unfair character shall not be made of terms which describe the main subject-matter of the contract nor the quality/price ratio of the goods or services supplied; whereas the main subjectmatter of the contract and the price/quality ratio may nevertheless be taken into account in assessing the fairness of other terms ...’
5. Article 3 of that directive provides:
‘1. A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.
...
3. The Annex shall contain an indicative and non-exhaustive list of the terms which may be regarded as unfair.’
6. Article 4 of Directive 93/13 reads as follows:
‘1. Without prejudice to Article 7, the unfairness of a contractual term shall be assessed, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent.
2. Assessment of the unfair nature of the terms shall relate neither to the definition of the main subject-matter of the contract nor to the adequacy of the price and remuneration, on the one hand, as against the services or goods supplies in exchange, on the other, in so far as these terms are in plain intelligible language.’
7. Under Article 6(1) of that directive:
‘Member States shall lay down that unfair terms used in a contract concluded with a consumer by a seller or supplier shall, as provided for under their national law, not be binding on the consumer and that the contract shall continue to bind the parties upon those terms if it is capable of continuing in existence without the unfair terms.’
8. Paragraph 1(j) and (l) of the Annex to Directive 93/13, which concerns terms referred to in Article 3(3) of the directive, mentions ‘terms which have the object or effect of: ... (j) enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract; … (l) ... allowing a ... supplier of services to increase [its] price without … giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded.’
9. Paragraph 2(b) of that Annex states that ‘[s]ubparagraph (j) is without hindrance to terms under which a supplier of financial services reserves the right to alter the rate of interest payable by the consumer or due to the latter, or the amount of other charges for financial services without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof at the earliest opportunity and that the latter are free to dissolve the contract immediately’ and paragraph 2(d) provides that ‘[s]ubparagraph (l) is without hindrance to price-indexation clauses, where lawful, provided that the method by which prices vary is explicitly described’.
B – Hungarian law
10. Article 209 of the Hungarian Civil Code, in the version in force when the loan agreement at issue in the main proceedings was concluded, provided as follows:
‘1. A standard contractual term, or a term not individually negotiated in a consumer contract, shall be regarded as unfair if, in breach of the requirements of good faith and equity, it establishes, unilaterally and without justification, the contractual rights and obligations of the parties to the detriment of the co-contractor of the party imposing the contractual term in question.
2. In order to determine whether a term is unfair, all circumstances existing on the date when the contract was concluded which gave rise to its conclusion and of the nature of the performance agreed and the relationship between the term in question and the other terms of the contract or other contracts must be taken into consideration.
…
4. The provisions concerning unfair contractual terms shall not be applicable to contractual terms that define the main subject-matter of the contract or to those that determine the balance between the performance and the consideration.
…’
11. With effect from 22 May 2009, Article 209(4) and (5) of the Hungarian Civil Code was amended as follows:
‘4. A standard contractual term, or a term not individually negotiated in a consumer contract, shall also be regarded as unfair simply on the ground that it is not in plain intelligible language.
5. The provisions concerning unfair contractual terms shall not be applicable to contractual terms that define the main subject-matter of the contract or to those that determine the balance between the performance and the consideration, in so far as those terms are in plain intelligible language.’
12. Under Article 237 of the Civil Code:
‘1. If a contract is invalid, the situation existing before it was concluded is to be restored.
2. If it is impossible to restore the situation existing before the contract was concluded, the court shall declare the contract to be applicable until it has given a ruling. An invalid contract may be declared valid if it is possible to eliminate the cause of invalidity, in particular in the case of disproportion in the performance required of each of the parties in usurious contracts, by eliminating the disproportionate advantage. In such cases, it will be necessary to order the restitution, should the case arise, of any supply or provision remaining without consideration.’
13. Article 239 of the Hungarian Civil Code provides:
‘1. In the event of partial invalidity of a contract, the contract shall fail in its entirety only if it cannot be performed without the ineffective part. Provisions to the contrary may be laid down by legislation.
2. In the event of partial invalidity of a contract concluded with a consumer, the contract shall fail in its entirety only if it cannot be performed without the ineffective part.’
14. Under Article 239/A(1) of the Civil Code:
‘The parties may institute proceedings seeking a declaration of invalidity of the contract or of any term of the contract (partial invalidity) without at the same time having to request application of the consequences of that invalidity.’
II – Facts, procedure and the questions referred
15. On 29 May 2008, Mr Kásler and Ms Káslerné Rábai (‘the claimants in the main proceedings’) concluded with OTP Jelzálogbank Zrt (‘the defendant in the main proceedings’) a contract for a ‘mortgage loan denominated in foreign currency, secured by a mortgage’.
16. Under Clause I/1 of the contract, the defendant in the main proceedings was to advance to the claimants in the main proceedings a loan amounting to 14 400 000 Hungarian forints (HUF), it being stipulated that ‘the amount of the loan in foreign currency shall be determined at the buying rate for the foreign currency applied by the bank on the date of advance of the funds’. Under Clause I of the contract, the claimants in the main proceedings had taken formal note that ‘after the funds have been advanced, the related interest, the administrative fees and default interest and other charges shall be determined in the foreign currency’. The amount lent was the equivalent in HUF of 94 240.84 Swiss francs at the buying rate of exchange applied by the defendant in the main proceedings on the date of advance of the funds. The claimants in the main proceedings were to repay that sum over 25 years, by monthly instalments falling due on the fourth day of each month.
17. Under Clause II of the contract, the loan was subject to a nominal interest rate of 5.2% which, together with administrative fees of 2.04%, resulted in an annual percentage rate of charge of 7.43% at the date of conclusion of the contract.
18. Lastly, under Clause III/2 of the contract, ‘the lender shall determine the amount in HUF of each monthly instalment due by reference to the selling rate of exchange for the [foreign] currency applied by the bank on the day preceding the due date’.
19. The claimants in the main proceedings brought an action against the defendant in the main proceedings, claiming that Clause III/2 of the contract was unfair. They argued that because that term authorised the bank to calculate the monthly repayment instalment due on the basis of the selling rate for the currency applied by the bank, it conferred on the bank an unjustified, unilateral benefit for the purposes of Article 209 of the Hungarian Civil Code.
20. The court of first instance allowed that action. That judgment was then upheld on appeal. In its judgment, the appellate court held, inter alia, that in the context of a loan transaction like that at issue in the main proceedings, the bank does not make foreign currency available to the customer and, in addition, does not provide it with any financial services relating to the buying or selling of currency; accordingly the bank may not apply a rate of exchange for purposes of repayment of the loan that is different from the rate applied when it was advanced. That court also held that the term at issue is not in plain intelligible language because it was impossible to determine the basis for the difference in the method of calculating the amount of the sum lent and the amount of the loan repayment instalments.
21. The defendant in the main proceedings then brought an appeal on a point of law against the judgment delivered on appeal.
22. It claimed, inter alia, that the term at issue, inasmuch as it enabled the bank to obtain income forming the consideration payable in respect of the loan in foreign currency obtained by the borrowers and as it covered the expenses incurred by the credit institution in purchasing foreign currency on the market, falls within the ambit of the exception under Article 209(4) of the Hungarian Civil Code, for which reason no examination may be made of whether it is unfair under Article 209(1) of the Civil Code.
23. The claimants in the main proceedings, on the other hand, contended that such examination is necessary. Among other points, they submitted that the bank may not invoke the particularities of banking practice against them or pass on to them the expenses which the bank incurs as a result of such practices. Since the borrowers consented to the loan being advanced in HUF, it would be impermissible to mix the banks’ sources of income with the sum lent. Furthermore, the term at issue is not in plain language.
24. It was against this background that the referring court decided to stay the proceedings and to refer to the Court the following questions:
‘(1) Must Article 4(2) of [Directive 93/13] be interpreted as meaning that, in the case of a debt in respect of a loan denominated in a foreign currency but, in reality, advanced in the national currency, and to be repaid by the consumer solely in national currency, the contractual clause concerning the rate of exchange of the currency, which was not individually negotiated, is covered by the “definition of the main subject-matter of the contract”?
If that is not the case, on the basis of the second expression used in Article 4(2) of [Directive 93/13], must it be considered that the difference between the buying rate of exchange and the selling rate of exchange constitutes remuneration whose equivalence with the service provided may not be analysed from the viewpoint of unfairness? In this regard, is the question whether there has in fact been a foreign exchange operation between the financial entity and the consumer decisive?
(2) If it were necessary to interpret Article 4(2) of the directive as meaning that the national court is also entitled to examine, regardless of the provisions of its national law, the unfairness of the contractual clauses referred to in that article, provided that such clauses are not drafted in a clear and intelligible manner, must it be considered, in the light of the latter requirement, that the contractual clauses must in themselves be grammatically clear and intelligible to the consumer or, in addition, must the economic reasons for using the contractual clause and its relationship with the other contractual clauses be clear and intelligible to that consumer?
(3) Must Article 6(1) of the directive and paragraph 73 of the judgment of the Court of Justice in Case C‑618/10 Banco Español de Crédito [(5)] be interpreted as meaning that the national court is not entitled to eliminate, for the benefit of the consumer, [the causes] of ineffectiveness of an unfair clause included in the general conditions of a loan contract concluded with a consumer, amending or adding to the contractual clause in question, even when, otherwise, if such a clause is eliminated, the contract cannot be performed on the basis of the remaining contractual clauses? In that regard, is it relevant that national law contains a provision which, in the event of omission of the ineffective clause, governs [in its place] the legal question at issue?’
25. The defendant in the main proceedings, the Hungarian, Czech, German, Greek, Italian and Austrian Governments and the European Commission submitted written observations. The defendant in the main proceedings, the Hungarian and German Governments and the Commission took part in the hearing, which was held on 5 December 2013.
III – The questions referred for a preliminary ruling
26. Before addressing one by one the questions asked, some observations should first be made regarding the purpose (ratio legis) and the meaning of Article 4(2) of Directive 93/13.
A – Preliminary remarks regarding the purpose and the meaning of Article 4(2) of Directive 93/13
27. Article 4(2) of Directive 93/13 undoubtedly constitutes an expression of the possibility of taking account of the freedom of choice and the freedom of contract enjoyed by the parties, which is a corollary of market economy.
28. That provision makes the application of the derogating provision, which exempts certain contractual terms from an examination of their unfairness, subject to the cumulative satisfaction of two conditions: first, the terms in question must concern ‘the main subject-matter of the contract’ or ‘the adequacy of the price and remuneration, on the one hand, as against the services or goods supplies, on the other’ and, second, the terms must be ‘in plain intelligible language’.
29. As is clear from the preparatory documents which preceded the adoption of Directive 93/13, (6) the text of the directive eventually adopted to combat unfair terms proved to be much less ambitious than the initial proposal from the Commission, (7) as a compromise had to be found between, on the one hand, the objective of consumer protection and the approximation of the laws of the Member States concerning unfair terms and, on the other, the principles of party autonomy and freedom of contract which are well established in the legal traditions of most Member States in the field of contract law.
30. In substance, this compromise is primarily, it would seem, reflected in two ways.
31. First, and contrary to the Commission proposal to draw up an exhaustive list of terms that must automatically be regarded as unfair, the list of terms in the Annex to Directive 93/13 is merely indicative.
32. Second, it is particularly notable that the directive refers only to, on the one hand, terms that have not been individually negotiated (Article 3 of Directive 93/13) and, on the other, terms that do not relate to the definition of the main subject-matter of the contract or to the adequacy of the price and the goods or services supplied (Article 4(2)).
33. As regards the corresponding provision in Article 4(2) of Directive 93/13, it is clear from the Common Position adopted on 22 September 1992 that it was added in order to exclude ‘anything resulting directly from the contractual freedom of the parties’. In other words, the wish was expressed that the core of the contractual relationship (essentialia negotii), once defined in plain intelligible language, should not be affected.
34. However, the insertion of such a provision might seem paradoxical on several counts.
35. First of all, it seems astonishing that Directive 93/13, which is intended, first and foremost, to protect consumers, at the same time precludes an assessment of the unfairness of non-negotiated provisions, which form the very ‘core’ of the contract. (8) This certainly explains why some Member States opted to extend the level of protection conferred by Directive 93/13 by not reproducing the limitation under Article 4(2) of Directive 93/13 in their implementing legislation. (9)
36. Next, although we can appreciate the wish, clearly expressed in the preparatory documents which preceded the adoption of Directive 93/13, to give some weight to party autonomy and freedom of contract, there are grounds for questioning the ratio legis of that provision. Because, under Article 3(1) of Directive 93/13, contractual terms that have been individually negotiated are not covered in any event, Article 4(2) of that directive covers an area in which freedom of contract is not given full expression.
37. This paradox was dispelled, to some extent, by the Court in Caja de Ahorros y Monte de Piedad de Madrid, which brought significant clarification of the role played by Article 4(2) in the system of protection introduced by Directive 93/13.
38. Noting, first of all, that Directive 93/13 carried out only a partial and minimum harmonisation of national legislation concerning unfair terms, while recognising that Member States have the option of affording consumers a higher level of protection than that for which the directive provides, the Court then ruled that that provision was concerned not with laying down the scope ratione materiae of Directive 93/13, but solely with establishing the detailed rules and the scope of the substantive assessment of contractual terms which have not been individually negotiated and which describe the essential obligations of contracts concluded between a seller or supplier and a consumer. Lastly, whilst denying that Article 4(2) of Directive 93/13 is mandatory, the Court concluded that Articles 4(2) and 8 of the directive must be interpreted as not precluding national legislation that authorises a judicial review of the unfairness of contractual terms relating to the definition of the main subject-matter of the contract or to the adequacy of the price and remuneration, on the one hand, as against the services or goods to be performed or supplied in exchange, on the other hand, even when those terms are drafted in plain, intelligible language. In authorising the possibility of a full judicial review of the unfairness of terms such as those referred to in Article 4(2) of the directive provided for in a contract concluded between a seller or supplier and a consumer, the national legislation makes it possible for consumers to be afforded, in accordance with Article 8 of the directive, a higher level of protection than that established by that directive. (10)
39. All these considerations should, building on the Court’s case-law and as I will explain in the arguments below, lead to a definition of the concepts mentioned in Article 4(2) of Directive 93/13 on the basis of autonomous criteria (11) distinct from any approaches taken at national level.
40. This means, first, that the criteria for the definition of the main subject-matter or the quality/price ratio of the goods or services supplied must, notwithstanding the discretion available to the national court hearing the matter, be clearly defined.
41. Second, the requirement of ‘plainness and intelligibility’ sought by Directive 93/13 must take account of the fact that the consumer, although reasonably observant and circumspect, is in a weaker position than the sellers or suppliers with which he has to conclude contracts. The plainness and intelligibility must not be limited to purely formal or linguistic aspects, but must take account of the asymmetrical position with regard to information that characterises the relationship between the consumer and the seller or supplier.
42. It is in the light of all these considerations that I shall examine the questions asked by the referring court.
B – The first question
43. By its first question, the Kúria seeks essentially to ascertain whether the unfairness of the contractual term relating to the difference between the rates of exchange applicable to the advance and to the repayment, respectively, of the loan, which has not been individually negotiated, may be examined as to its substance or whether this is precluded by Article 4(2) of Directive 93/13 in so far as such a term relates to the definition of the main subject-matter of the contract or the quality/price ratio of the goods or services supplied.
44. The Court is asked, more generally, to determine whether all the elements of the monetary consideration to be paid by the debtor constitute a term defining ‘the main subject-matter of the contract’ or whether the payment of interest is the only element which belongs, together with payment of the loan, to the main subject-matter of the contract (first aspect). If the latter statement is correct, the question arises whether the obligation to pay the difference between the rates of exchange forms part of the ‘remuneration’ under the second variant in Article 4(2) of Directive 93/13 (second aspect).
1. First aspect: definition of the notion of the main subject-matter of a contract
45. I would point out that, in Caja de Ahorros y Monte de Piedad de Madrid, the Court has already stated that Article 4(2) of Directive 93/13 was concerned with the ‘essential obligations of contracts’ concluded between a seller or supplier and a consumer. (12) It did not, however, find it necessary to establish whether the term at issue actually concerned essential obligations.
46. It should be borne in mind in this regard that it is ultimately for the national courts alone to define what constitutes essential obligations of a given contract. That assessment undoubtedly requires an exhaustive examination of the contract in question and of all the circumstances of fact and law attending the conclusion of the contract. (13)
47. However, in the context of its jurisdiction under Article 267 TFEU to interpret EU law, the Court may identify general criteria for defining the notions contained in Directive 93/13. (14)
48. This is especially necessary in the present case because there seem to be diverging positions developing in this regard, in particular in relation to the conclusion of credit agreements. In a first development, which has been followed particularly by the Supreme Court of the United Kingdom, (15) no distinction is to be drawn between essential price elements (‘core terms’) and charges that could be payable if certain conditions are met (‘incidental terms’) and, consequently, all payment obligations relating to the supplies would satisfy the exception criteria referred to in Article 4(2) of Directive 93/13. On the other hand, German courts, and the majority of German legal opinion, seem to take a much stricter approach in this regard. (16)
49. In my view, in order to determine what constitutes the main subject-matter of a contract, the court must decide in each individual case the essential obligation(s) which must objectively be regarded as essential in the general scheme of the contract. That assessment, which is not to be seen in abstract terms, cannot be limited to an examination of the parameters defining a specific contract having regard to national law, but must take account of the specific features stemming from the actual terms of the contract.
50. Furthermore, it appears that the main subject-matter of a contract generally includes several inseparable aspects and that such a contract cannot be adequately defined by reference to part of the anticipated services or goods.
51. To illustrate my remarks, I would cite the example of a contract for the sale of a motor vehicle. The main subject-matter of the contract does not relate to some vehicle or other, but must also be defined as referring to a vehicle of a certain make, with certain technical characteristics and fulfilling certain aesthetic criteria.
52. In the case of a contract for the provision of a service, reference can be made to the example of a package travel contract concluded between a consumer and a tour operator. If, having regard to the applicable national law and practice, not only the transport services but also the agreed accommodation services can undoubtedly be regarded, in abstract terms, as forming part of the core of the contract, it cannot therefore be concluded that one of those aspects prevails or has secondary importance in relation to the other. Those two aspects undoubtedly form part of the main subject-matter of the contract in question.
53. In addition, in order to conclude that a contractual term is not part of the main subject-matter of the contract, the national court called on to give a ruling will have to determine, case by case, whether that term contributes objectively, in one way or another, to the legal or commercial definition of the essential characteristics of the contract. Accordingly, the court must determine whether that term intrinsically forms part of the obligations that define the contract in so far as, without such a term, the contract loses one of its fundamental characteristics, or even cannot subsist on the basis of the remaining contractual stipulations.
54. In the present case, in order to give a useful answer to the referring court, it is necessary to provide criteria for defining what may constitute the ‘essential obligations’ of a credit agreement.
55. Further to my above statements, account must be taken not only of criteria deriving from the applicable national law, but also of criteria specific to the terms of the contract in question.
56. The consumer credit agreement may be defined, as a whole, as an agreement under which the lender provides the borrower with a certain sum of money, subject to the obligation for the borrower to repay that sum, with interest paid by the borrower in the case of an interest-bearing loan.
57. This definition corresponds largely to the definition employed in EU law, for example in Directive 2008/48/EC on credit agreements, (17) but also to the definition laid down in the relevant national law, in this case Hungarian law. Under Article 523(1) of the Hungarian Civil Code, by a credit agreement, the financial institution undertakes to make a certain sum of money available to the debtor, who undertakes to repay the amount of the loan in accordance with the contract. Article 523(2) of the Hungarian Civil Code specifically mentions, by way of a consideration, only the payment of interest.
58. If the nominal interest rate forms part of the very essence of a credit agreement, what about a mechanism allowing the lender to calculate the monthly instalments on the basis of the rate of exchange for a foreign currency?
59. Of course, it could be argued that the notion of a term defining ‘the main subject-matter of the contract’ must be given a very strict interpretation and that, accordingly, with regard to a credit agreement, it is not every element of the monetary consideration which has to be paid by the debtor in the package at issue that can be regarded as forming part of the main subject-matter of the contract. A distinction could possibly be drawn between contractual provisions relating to the determination of the interest rate, which concerns the main subject-matter, and provisions that concern secondary or ancillary charges with regard to the loan mechanism in question.
60. However, whilst this general observation is difficult to contest in the case of a credit agreement in the broad sense, I am far from convinced that it applies in every case and, in particular, with regard to a credit agreement concerning a ‘mortgage loan denominated in foreign currency, secured by a guarantee in rem’.
61. If it is accepted that the notion of the main subject-matter of the contract must cover everything that the parties, having regard to the plain wording of the contract, have defined as such, in that it corresponds to all the essential obligations that must be taken into account by way of consideration for the supplies made, (18) it would seem difficult to limit the subject-matter of the contract to the stipulations relating to the determination of the nominal interest rate.
62. With regard to a loan denominated in foreign currency, the term concerning the applicable rate of exchange will probably form part of the main subject-matter of the contract since, in all likelihood, it constitutes one of its essential elements in so far as, failing that term, the performance of the contract is jeopardised. (19) In my view, it is clearly different from the mechanism for amending the money order fees at issue in Invitel (20) or the term concerning interest on late payments in Banco Español de Credito.
63. The mechanism of a loan in foreign currency is based on several aspects that are, in principle, inseparable. First, although the loan is advanced and repaid in domestic currency in practice, it is in any case denominated in foreign currency. Second, the applicable interest rate, which applies to the amount of a loan denominated in foreign currency, is generally lower than the rate applicable to a loan denominated in local currency. Third, payments of monthly instalments of the loan are made in domestic currency on the basis of the rate of exchange applicable when the payments are made. (21)
64. This interpretation does not invalidate the idea that, in the light of the requirement of consumer protection, the national court must, as far as possible, favour a relatively strict notion of what constitutes the main subject-matter of the contract. The approach that must be taken in defining the notion of the main subject-matter of the contract for the purposes of Article 4(2) of Directive 93/13 must result in the exclusion of provisions having a secondary or residual character in the scheme of the contract and not of those that concern one or more essential obligations characterising the contract.
65. In the light of all these considerations, it cannot be ruled out that, with regard to a loan agreement like that at issue in the main proceedings, in so far as the term concerning the applicable rate of exchange constitutes one of the cornerstones of a contract denominated in foreign currency, it forms part of the main subjectmatter of the contract.
66. Should the Court not see fit to endorse this latter conclusion, it must be determined whether the payment obligation stemming from the difference between the buying rate of exchange and the selling rate of exchange may be regarded as an element relating to the quality/price ratio of the service provided.
2. Second aspect: can the difference between the selling rate of exchange and the buying rate of exchange for the foreign currency be regarded as part of the remuneration due to the lender?
67. In the present case, on a cursory analysis the view could be taken that the practice in question must concern a part of the price, and that it accordingly cannot be subject to a substantive review in accordance with Article 4(2) of Directive 93/13 unless the term in question is neither plain nor intelligible.
68. However, it must be borne in mind that such an exception does not concern all parts of the price, but only the adequacy of the price and remuneration, on one side, as against the services or goods supplied in exchange, on the other. As is stated in the Report from the Commission of 27 April 2000 on the implementation of Council Directive 93/13, (22) the terms laying down the manner of calculation and the procedures for altering the price remain entirely subject to the directive.
69. The second possible exception referred to in Article 4(2) of Directive 93/13 would seem to refer to cases, very rare in practice, in view of the fact that there is no scale, (23) in which an almost mathematical relationship can be established between the quality of the supplies and the remuneration for those supplies.
70. With regard to the contractual terms of a loan agreement denominated in foreign currency that provides that it is the buying rate of exchange for the currency that is to be applied at the time the loan is advanced, whereas it is the selling rate of exchange that is to be applied at the time the loan is repaid, the following problem arises.
71. If, as seems to be the case in the main proceedings, the bank does not provide the customer with a specific service, but the reference to the foreign currency is merely a standard of value, the view could be taken that that difference between the buying price and the selling price for the foreign currency is not an adequate consideration and that the unfairness of the relevant contractual term may be examined. If, however, it is shown that there is a direct relationship between, on the one hand, the difference between the buying rate of exchange and the selling rate of exchange and, on the other, the quality of the service provided, which, it would seem, has to be ruled out in view of the fluctuating nature of that difference, no assessment may be made as to the possible unfairness of the stipulations relating to that difference.
72. In the light of all these considerations, I propose that the Court answer the first question to the effect that, on a proper construction of Article 4(2) of Directive 93/13, in the case of a loan denominated in a foreign currency but, in reality, advanced in the national currency, and repayable by the consumer solely in national currency, the contractual clause concerning the rate of exchange of the currency, which was not individually negotiated, may be considered to form part of the ‘main subject-matter of the contract’ where the contract makes it clear that that clause constitutes one of its essential elements. On the other hand, the difference between the selling rate of exchange and the buying rate of exchange of the currency cannot be considered to constitute remuneration whose equivalence with the service provided cannot be analysed from the viewpoint of unfairness.
C – The second question: requirement of plain intelligible language for terms subject to the exception under Article 4(2) of Directive 93/13
73. The answer to this second question, which concerns the requirement of plainness and intelligibility laid down in Article 4(2) of Directive 93/13, is meaningful only if the referring court were to consider that the first question should be answered in the affirmative. As I mentioned above, it cannot be ruled out that, with regard to a loan agreement denominated in foreign currency, terms concerning the rate of exchange applicable to the repayment and the advance of the loan do relate to the main subject-matter of the contract.
74. First, and even before addressing the substance of the question asked, the Court must determine whether the requirement of plain intelligible language applies even when that requirement has not been reproduced in the provisions of national law.
75. The referring court has emphasised that the defendant had claimed that it was impossible for the court hearing the case to examine whether the terms at issue were in plain intelligible language since, on the date of conclusion of the credit agreement at issue, Article 209(4) of the Hungarian Civil Code did not reproduce that requirement.
76. In this regard, it seems fairly clear from the Court’s settled case-law on the obligation to interpret national law in conformity with EU law, to which national courts are also subject in a horizontal dispute, (24) that the national court called upon to interpret its national law is required to do so, as far as possible, in the light of the wording and the purpose of Directive 93/13 in order to achieve the result pursued by the latter. (25)
77. That obligation to interpret national law in conformity with EU law applies particularly because the Court has stressed its importance with regard to the requirement of plainness and intelligibility laid down in Article 4(2) of Directive 93/13, ruling that in order to safeguard in practice the objectives of consumer protection pursued by Directive 93/13, any transposition of Article 4(2) had to be complete, with the result that the prohibition of the assessment of the unfairness of the terms relates solely to those which are drafted in plain, intelligible language. (26)
78. It follows that the national court hearing the dispute can therefore (and even must) ascertain whether the terms in question satisfied the requirement of transparency set out in Article 4(2) of Directive 93/13, irrespective of whether that requirement had, on the date of conclusion of the loan agreement in question, been explicitly reproduced in the applicable national law.
79. Second, the question arises whether the requirement that terms relating to the main subject-matter or the quality/price ratio of the goods or services supplied must be ‘in plain intelligible language’ in order to be exempt from an assessment of their unfairness relates only to the formal, linguistic aspect of the term or whether, more broadly, it also applies to the economic consequences of the application of the contractual term at issue or its relationship with other terms.
80. Further to what I have set out above, while the protection of the consumer, as the vulnerable party, necessarily calls for a clear, objective interpretation of the notions of ‘main subject-matter’ and ‘price’ contained in Article 4(2) of Directive 93/13, it at the same time demands that the requirement of transparency be construed broadly. As the Commission has stated, in view of the consumer’s weak position vis-à-vis the seller or supplier as regards the level of knowledge, he may have difficulties in properly assessing the consequences of certain contractual terms even though they have been drafted in plain language.
81. Consequently, the examination of the plain and intelligible character of a term should not be limited purely to its drafting. Whether a contractual term is plain and intelligible must be assessed with reference to the question whether it ensures that the consumer has information on the basis of which he will be able to assess the advantages and disadvantages of concluding a certain contract and the risks he runs because of the transaction. The consumer must understand not only the content of a term, but also the related obligations and rights. (27)
82. It would seem, moreover, that this interpretation finds firm support in the Court’s most recent case-law.
83. In RWE Vertrieb, (28) which concerned in particular the interpretation of Article 5 of Directive 93/13, requiring sellers or suppliers to draft contractual terms offered to consumers ‘in plain, intelligible language’, the Court stated that it was for the referring court, with regard to all the circumstances of the individual case, to satisfy itself that consumers were able to foresee the charges that they might incur.
84. Although that case-law admittedly concerns the interpretation of Article 5 of Directive 93/13, I believe that it is all the more valid with regard to the requirement of transparency under Article 4(2) of Directive 93/13, the latter provision having the significant effect of exempting certain contractual provisions from the assessment of unfairness. There should be no excessive reduction of the requirements relating to the plain and intelligible character of the term concerned, which determine whether a substantive review is to be implemented and which the national court having jurisdiction must establish having regard to all the circumstances of the individual case.
85. To return to the main proceedings, and without wishing to prejudge the examination which the national court will have to conduct, it is clear from the information provided by the referring court that, from a purely linguistic point of view, the contractual provisions relating to the rate of exchange applicable to the advance and the repayment respectively of the loan would seem to have been set out in plain language. Clause I/1 of the contract at issue stipulates that ‘the amount of the loan in foreign currency will be determined at the buying rate for the foreign currency applied by the bank on the date of advance of the funds’. Furthermore, under Clause III/2 of that contract, ‘the lender shall determine the amount in HUF of each monthly instalment due by reference to the selling rate of exchange for the [foreign] currency applied by the bank on the day preceding the due date’.
86. However, plain as these terms may be, there could be doubts as to their overall intelligibility. There are grounds for questioning the assessment, by the consumer concerned, of the precise economic consequences of the term of the credit agreement which refers to the buying price for the currency (and not to the selling price for the currency) on the sums that will ultimately be payable.
87. If, contrary to the suggestion made by the Commission, the consumer was, to a considerable extent, capable of assessing the risk related to the level of his debt denominated in domestic currency in the event of an increase in the rate of exchange of the reference foreign currency, the loan agreement concluded by him having been denominated specifically in that foreign currency, it is nevertheless far from clear that the consumer was able to understand, when there was no relevant explanation given in the contract or at the time the contract was concluded, the reasons why the monthly instalments had to be calculated on the basis of the selling rate of exchange for the foreign currency, when the buying rate of exchange for the currency was used when the loan was advanced.
88. How many consumers, although reasonably observant and circumspect, are able to understand the extent of the difference between the selling price for a currency and its buying price? Unlike what is generally seen on the securities market, the buying and selling of currencies cross and are carried out with reference to another currency. Consequently, there is not one spot rate of exchange, but two. (29) The difference between the buying price and the selling price for a currency (the ‘spread’), which depends largely on the number and the quality of the participants on the market in question, may be considerable. This latter information, which is generally well understood by sellers or suppliers in the banking and financial sectors and other interested parties, is not, however, necessarily known to the average consumer. (30)
89. The national court will nevertheless have to ascertain whether, in view of the information provided by the sellers or suppliers before the conclusion of the contract, the consumer was able to assess the precise consequences of the reference to the buying price (and not to the selling price).
90. In the present case, it will be for the court hearing the case to determine, in the light of the objective information available when the contract at issue was concluded, whether the consumer was able to understand that, in addition to, on the one hand, interest and, on the other, the risks necessarily stemming from the variation in the rate of exchange between the domestic currency (in which he repaid his loan) and the reference foreign currency, he was also subject, without knowing the cause, to an additional expense stemming from the difference between the selling price for the foreign currency and the buying price for that currency.
91. In the light of these considerations, and in so far as the first question should be answered in the affirmative, it is proposed that the answer to the second question be that, on a proper construction of Article 4(2) of Directive 93/13, the court hearing the case must examine the unfairness of the contractual terms referred to therein if they are not in plain intelligible language, on the basis of an interpretation in conformity with EU law of the national law applicable on the date of conclusion of the contract in question. The examination of whether the contractual terms are plain and intelligible must take account of all the circumstances of the individual case, including the information given to the consumer when the contract was concluded, and must cover, in addition to the strictly formal, linguistic aspect, a precise assessment of the economic consequences of those terms and any links that might exist between them.
D – The third question: powers of the national court to replace or amend a term regarded as unfair
92. According to the order for reference, having declared unfair the contractual term relating to the calculation of monthly instalments by application of the difference between the buying rate of exchange and the selling rate of exchange for the reference foreign currency, the appellate court decided, on the basis of Article 237(2) of the Hungarian Civil Code, (31) to amend the loan agreement at issue in the main proceedings, so directing that the monthly loan repayment instalments must be calculated on the basis of the buying rate applied by the bank.
93. However, the amendment made by the appellate court raises the question whether it is contrary to the approach taken in Banco Español de Credito.
94. In that case, the Court was required, inter alia, to rule on whether Article 6(1) of Directive 93/13 precludes legislation of a Member State which allows a national court, when it finds that an unfair term in a contract concluded between a seller or supplier and a consumer is void, to alter that contract by revising the content of that term.
95. The Court answered in the affirmative with reference to the wording of Article 6(1) of Directive 93/13, and more generally to the objective and overall scheme of Directive 93/13. In that context, it stated in particular that the power to revise the content of unfair terms would be liable to compromise attainment of the long-term objective of Article 7 of Directive 93/13. Such a power would contribute to eliminating the dissuasive effect for sellers or suppliers of the straightforward non-application with regard to the consumer of those unfair terms, in so far as those sellers or suppliers would still be tempted to use those terms in the knowledge that, even if they were declared invalid, the contract could nevertheless be altered, to the extent necessary, by the national court in such a way as to safeguard the interest of those sellers or suppliers. Accordingly, such a power, were it granted to the national court, would not be capable of ensuring, of itself, such efficient protection of the consumer as that resulting from non-application of the unfair terms. (32)
96. In this regard, it should be stated that the approach taken by the Court was intended to restore a contractual balance between the rights and obligations of the parties in a situation in which the contract at issue could continue in existence, in principle, ‘without any amendment other than that resulting from the deletion of the unfair terms, in so far as, in accordance with the rules of domestic law, such continuity of the contract is legally possible’ (paragraph 65 of the judgment).
97. In addition, the prohibition of the court’s revising the content of a term which it regards as unfair, instead of merely setting aside its application, refers to a situation where the deletion of the term at issue, which is of ancillary character in the scheme of the contract, does not jeopardise the existence of the contract and does not prove detrimental to the consumer.
98. That situation differs from that in the main proceedings, in which deletion of the contractual term deemed unfair would mean that it is impossible to continue to perform the contract, which ultimately has particularly detrimental consequences for the consumer. Deletion of the terms relating to the applicable rate of exchange would make the credit agreement impossible to perform. Furthermore, the consumer would in all probability have to repay the balance of the loan to the bank immediately. The consumer not, in general, being able to repay the loan immediately, it is likely that the mortgage would be mobilised.
99. Furthermore, it seems to me neither necessary nor desirable to extend the approach taken by the Court to make it possible for the national court to replace the invalid unfair term with supplementary national provisions.
100. In my view, there is nothing, in principle, to prevent the national court, pursuant to principles of contract law, eliminating the unfairness of a term by replacing it with a supplementary provision of national law. Replacement with such a provision, which is itself presumed not to contain unfair terms, (33) thus allowing a situation in which the contract can continue to exist despite the deletion of the term at issue and can still be binding on the parties, seems to be in keeping with the objectives of Article 6(1) of Directive 93/13.
101. The objective pursued by the EU legislature in connection with Directive 93/13 consists in restoring balance between the parties while in principle preserving the validity of the contract as a whole, not in annulling all contracts containing unfair terms. (34)
102. On the other hand, if such replacement were not permitted and the court were required to annul the contract, the dissuasive effect of the penalty of invalidity could be jeopardised. Such annulment will normally mean that the full amount of the balance of the loan becomes due, which is likely to be in excess of the consumer’s financial capacities and therefore to penalise the consumer rather than the borrower who, in the light of that consequence, might not be encouraged to prevent such terms being included in its contracts.
103. Accordingly, a ‘validation’ of the contract by means of a replacement with a supplementary provision, if permissible under the applicable national law, which it is for the referring court to determine, would seem to be necessary in order to restore real balance between the parties and thereby ensure the protection of the consumer against unfair terms, which is the main objective of Directive 93/13, by safeguarding the effectiveness of the protection mechanism introduced by that directive.
104. While fully aware that this question was not referred directly and specifically to the Court, and that it has not, therefore, been discussed by the parties, (35) I think that it is important to stress that this power of replacement ought not to be unlimited; the purpose of the court’s intervention must, as far as possible, be simply to reestablish a degree of equality between the sellers or suppliers and the consumers with whom they conclude contracts. (36)
105. It must not lead to the upsetting of the contractual balance through the intervention by a State authority after the contract has been concluded. It is well known that, in principle, the contract is governed by the law in force on the date it is formed and that any intervention by a third party, including the State in its legislative function, must be viewed with caution in so far as it could potentially jeopardise the freedom of contract and the free competition which are its corollary. (37)
106. It is proposed that the answer to the third question be that while, under Article 6(1) of Directive 93/13, the national court may not remedy, for the consumer, the invalidity of an unfair contractual term used, there is nothing to prevent the national court applying a supplementary provision of national law that may replace the invalid contractual term, provided that, under the rules of national law, the contract can still subsist in law after the unfair term has been deleted.
IV – Conclusion
107. In the light of the foregoing analysis, I propose that the Court answer the questions referred for a preliminary ruling by the Kúria as follows:
(1) On a proper construction of Article 4(2) of Council Directive 93/13/EEC on unfair terms in consumer contracts, in the case of a loan denominated in a foreign currency but, in reality, advanced in the national currency, and repayable by the consumer solely in national currency, the contractual clause concerning the rate of exchange of the currency, which was not individually negotiated, may be considered to form part of the ‘main subject-matter of the contract’ where the contract makes it clear that that clause constitutes one of its essential elements. On the other hand, the difference between the selling rate of exchange and the buying rate of exchange of the currency cannot be considered to constitute remuneration whose equivalence with the service provided cannot be analysed from the viewpoint of unfairness.
(2) On a proper construction of Article 4(2) of Directive 93/13, the court hearing the case must examine the unfairness of the contractual terms referred to therein if they are not in plain intelligible language, on the basis of an interpretation in conformity with EU law of the national law applicable on the date of conclusion of the contract in question. The examination of whether the contractual terms are plain and intelligible must take account of all the circumstances of the individual case, including the information given to the consumer when the contract was concluded, and must cover, in addition to the strictly formal, linguistic aspect, a precise assessment of the economic consequences of those terms and any links that might exist between them.
(3) While, under Article 6(1) of Directive 93/13, the national court may not remedy, for the consumer, the invalidity of an unfair contractual term used, there is nothing to prevent the national court applying a supplementary provision of national law that may replace the ineffective contractual term, provided that, under the rules of national law, the contract can still subsist in law after the unfair term has been deleted.