Judgment summary
This is a request for a preliminary ruling made by the Hoge Raad der Nederlanden to the Court of Justice of the European Union, concerning the interpretation of Article 6(1), Article 7(1) and Article 8b of Council Directive 93/13/EEC on unfair terms in consumer contracts, as amended (para 1).
The reference arose from proceedings between Stichting Woonstichting Lieven de Key (LdK), a legal person governed by Netherlands law engaged in letting immovable property, and BS, a natural person, concerning termination of a lease agreement, payment of a user fee, and reimbursement of judicial and extrajudicial costs (para 2).
The Court held that Article 6(1) and Article 7(1) of Directive 93/13, read in the light of the principle of effectiveness, do not preclude a consumer who is unsuccessful in judicial proceedings from being ordered to pay costs under national procedural law governing the allocation and taxation of costs, where an unfair legal costs clause has been declared void but the contract can continue to exist without it (para 46).
Background
LdK, as leasing owner, let a parking space to BS. Article 11.1 of the lease agreement provided that, if the tenant failed to comply with a provision of the agreement or of law, all costs incurred by the lessor, including administrative costs and all judicial and extrajudicial costs, were to be borne by the tenant (para 11).
Following BS's failure to pay rent and several letters of formal notice, LdK brought an action before the kantonrechter (District Court, Cantonal Sector) seeking termination of the lease, eviction of BS, payment of EUR 482.50 (including extrajudicial costs), a user fee until actual eviction, and the costs of the judicial proceedings (para 12). BS did not appear in those proceedings (para 13).
By an interim judgment of 23 April 2024, the kantonrechter held that Article 11.1 had to be classified as an unfair term insofar as it attributed extrajudicial costs to the tenant, and provisionally held the same in respect of judicial costs, since the clause could allow costs to exceed the amount fixed by a national scale imposing a ceiling on costs recoverable from an unsuccessful party (para 14).
By an interlocutory judgment of 16 July 2024, the kantonrechter referred two questions to the Hoge Raad der Nederlanden, the first on the unfairness of Article 11.1, the second on whether, if that clause were unfair, the consumer could still be ordered to pay costs under Article 237(1) of the Code of Civil Procedure (para 15). The referring court classified Article 11.1 as unfair and not binding on the consumer, while finding the lease capable of continuing in existence without that clause (para 16).
Core dispute
The dispute concerned whether, once a contractual clause requiring the consumer-tenant to bear all judicial and extrajudicial legal costs had been declared unfair and void under Directive 93/13, and the lease agreement remained capable of continuing in existence without that clause, the national court could nonetheless apply ordinary national procedural rules, such as Article 237(1) of the Code of Civil Procedure, to order the unsuccessful consumer to pay the seller's or supplier's legal costs (paras 17, 21, 24).
The referring court questioned whether Article 237(1) of the Code of Civil Procedure, which provides that the unsuccessful party is to be ordered to pay the costs, should be classified as a "supplementary provision of national law" which, under existing case law (including Dexia Nederland, C-229/19 and C-289/19), could not be substituted for an unfair term where the contract survives without it (paras 17-18).
The referring court also asked whether applying national cost-allocation rules after annulment of the unfair clause might undermine the deterrent effect sought by Directive 93/13, given that non-application of those rules could itself constitute an appropriate sanction (para 20).
Court findings
The Court first found that Article 8b of Directive 93/13, concerning penalties for infringements of national provisions transposing the directive, was irrelevant to the dispute because the main proceedings did not concern the imposition of a fine or other penalty on the seller or supplier (para 23).
The Court reiterated that the purpose of Article 6(1) is not to annul all contracts containing unfair terms but to replace the formal balance with an effective balance restoring equality between the parties, provided the contract can continue in existence without the unfair term (para 25). Replacement of an annulled unfair term by a supplementary national provision is an exceptional possibility, limited to situations where removal of the term would oblige invalidation of the whole contract to the particular detriment of the consumer (para 26). Where, as here, the contract can remain in force without the unfair term, the national court cannot replace that term with a supplementary national provision (para 27).
The Court explained that supplementary provisions are those applying by default in the absence of other arrangement between the parties, reflecting a balance the legislature intended between the rights and obligations of parties to certain contracts (para 30).
Applying this to the facts, subject to verification by the referring court, the Court found that Article 237(1) of the Code of Civil Procedure is addressed solely to the court ruling on costs and does not govern the contractual relationship between the parties nor reflect a legislative balance of contractual rights and obligations; accordingly it does not amount to a "supplementary provision of national law" within the meaning of the relevant case law (paras 33, 38).
The Court also noted that national rules provide for scales imposing a ceiling on recoverable lawyers' fees, and that Article 242(1) of the Code of Civil Procedure empowers the court to moderate of its own motion the amount of legal costs stipulated by contract (paras 34-35).
On the principle of effectiveness, the Court held that although Directive 93/13 confers a right to seek a declaration that a term is unfair, and cost rules must not deter consumers from exercising that right, the Netherlands rules on allocation and taxation of costs, which include ceilings via scales of costs and judicial power to moderate, appeared capable of preventing the consumer being ordered to pay overly high costs, subject to verification by the referring court (paras 42-44).
The Court further held that these rules did not compromise the directive's objective of deterring the use of unfair terms, because under them the seller or supplier would recover only part of its costs, within the ceiling of the applicable scales and subject to possible judicial moderation, rather than all costs as the unfair clause had purported to allow (para 45).
Outcome
The Court ruled that Article 6(1) and Article 7(1) of Directive 93/13, read in the light of the principle of effectiveness, must be interpreted as meaning that, where a contractual clause requiring a consumer to pay all legal costs relating to proceedings resulting from a failure to fulfil a contractual or statutory obligation has been declared unfair and void, but the agreement can nonetheless continue in existence without that clause, those provisions do not preclude the unsuccessful consumer from being ordered to pay costs in accordance with national procedural law governing the allocation and taxation of costs (para 46 and operative part).
The Court left certain verifications, including the classification of Article 237(1) of the Code of Civil Procedure and compliance with the principle of effectiveness, to the referring court (paras 32, 38, 44).
Major issues / areas of contention
- Whether Article 8b of Directive 93/13 was relevant where the dispute did not concern imposition of a penalty for infringement of national provisions transposing the directive (para 23).
- Whether Article 237(1) of the Code of Civil Procedure, providing that the unsuccessful party pays costs, constitutes a 'supplementary provision of national law' that cannot replace an annulled unfair term under existing case law (paras 17-18, 30, 38).
- Whether applying national cost-allocation and taxation rules after annulment of an unfair legal costs clause is compatible with the deterrent objective of Directive 93/13 (para 20, 45).
- Whether national rules on costs, including ceilings under scales of costs and judicial power to moderate costs, comply with the principle of effectiveness so as not to deter consumers from exercising their rights under the directive (paras 42-44).