Promissory note enforcement vs. an ex officio review of unfair terms

loan

In the opinion of the District Court in Siemianowice Śląskie (judgement of 15 September 2016, I C 741/16), on the one hand the legislation provides for instruments making it possible to protect the consumer against unfair market practices, but on the other hand there functions a procedure of pursuing claims (in this case: payment order proceedings on the basis of a promissory note), which makes it possible to considerably weaken, in the consumer trade practice, the application of instruments of consumer protection. The Court, by limiting itself to an assessment of whether a promissory note has been issued correctly, does not need to examine whether a consumer loan agreement contains any abusive clauses, or whether the information obligations of the lender have been fulfilled, etc. Therefore, the provisions on payment order proceedings constitute a clear intrusion into the system of protecting the consumer against unfair market practices, which are described in Article 76 of the Constitution.

The basic facts

The defendant (a consumer) concluded a loan agreement with the claimants, operating in the form of a civil law partnership (spółka cywilna) in a parabanking network, specialising in grating minor consumer loans. As security of loan repayment, the defendant issued a promissory note for PLN 2,770. The claimants summoned the defendant to buy out the promissory note, but this proved ineffective. In connection with the above, the claimants asked to be issued an order of payment on the basis of the promissory note in payment order proceedings. Apart from the promissory note, the claimants did not present any document confirming the existence of the basic relation between the defendant and the claimants. The District Court dismissed the action in full.

The District Court found that in a case brought against a consumer, it is inadmissible to issue an order of payment in payment order proceedings under a promissory note, since these provisions are inconsistent with EU law in the scope of consumer rights protection, in particular Directive 93/13/EEC. Moreover, issuing and accepting a promissory note is inadmissible in B2C relations, if it is aimed at circumventing the statutory law (the European and national consumer rights protection system), and this means that legal acts and the promissory note liabilities resulting therefrom are invalid (Article 58.1 of the Civil Code).

In the opinion of the District Court, this case was an EU case, since granting minor loans to consumers is regulated in the national and EU provisions of law, and therefore the application of the provisions of Polish law should be consistent with EU regulations.

According to Article 76 of the Constitution, public authorities must protect consumers against dishonest market practices. This protection is comprised of various legal acts, constituting at the same time part of the European consumer rights protection system in the EU. Therefore, an assessment of the provisions regulating payment order proceedings must take into account the entire consumer rights protection space, i.e. constitutional standards, provisions of national and EU law.

Reasons for non-compliance with 93/13/EEC directive

However, in the opinion of the Court, on the one hand the legislation provides for instruments making it possible to protect the consumer against unfair market practices, but on the other hand there functions a procedure of pursuing claims (in this case: payment order proceedings on the basis of a promissory note), which makes it possible to considerably weaken, in the consumer trade practice, the application of instruments of consumer protection. The Court, by limiting itself to an assessment of whether a promissory note has been issued correctly, does not need to examine whether a consumer loan agreement contains any abusive clauses, or whether the information obligations of the lender have been fulfilled, etc. Therefore, the provisions on payment order proceedings constitute a clear intrusion into the system of protecting the consumer against unfair market practices, which are described in Article 76 of the Constitution.

This shape of the civil procedure in the scope of payment order proceedings on the basis of a promissory note is undoubtedly in breach of Article 6 of Directive 93/13/EEC, and since it is, then account taken of the principle of primacy of EU law over national law, the Court did not apply the provisions on the payment order proceedings, remanding the case to be considered in ordinary proceedings.

In addition, in the opinion of the Court, the legal (contractual) act from which the promissory note obligation of the defendant arises, although not forbidden by the provisions of law, was nonetheless aimed at circumventing the abusive clauses provisions and shifting the burden of proof that there was no basis to issue the promissory note to the consumer. This act was also aimed at circumventing the provisions of the Act on Combating Unfair Market Practices (it made it impossible for the court to ex officio assess whether the loan agreement had been concluded in the conditions of unfair market practices) and the Act on Consumer Loans (it made it impossible for the court to ex officio establish whether the lender had performed its informational obligations).

The District Court found that national courts have the obligation to establish whether any unfair commercial practices were applied with respect to a defendant consumer. This obligation could not be performed, as the claimants – in light of the abstract nature of the promissory note obligation – were not required to submit documents confirming the legality of concluding the loan agreement, etc. (which is not required in light of the abstract nature of the promissory note obligation), but which was actually aimed – in the opinion of the Court – at circumventing the abovementioned acts.

Therefore, the Court found that the legal act being the object of the promissory note obligation was invalid. As the promissory note obligation was found to be invalid, the dispute was shifted to the field of the loan agreement. The claimants, despite having been obliged by the Court to do so, failed to provide any document confirming the conclusion of the loan agreement, and thus the action was dismissed.

Background in the CJEU case-law

The Court referred to and cited CJEU judgement C-413/12 (Asociación de Consumidores Independientes de Castilla y León), in which was stated that In the absence of harmonised legal procedural means available to consumer protection associations to prevent the continued use of unfair terms both in the interests of both consumers and competitors, it is for the internal legal order of each Member State, under the principle of procedural autonomy, to establish such rules, provided however that they are not less favourable than those governing similar situations subject to domestic law (principle of equivalence) and that they do not make it impossible in practice or excessively difficult to exercise the rights conferred by European Union law on consumer protection associations (principle of effectiveness). This principle (with the principle of effectiveness; see below) was used by the Court to prove that the provisions on payment order proceedings are inconsistent with EU law in the scope of consumer rights protection, and therefore the Court is not obliged to apply them.

The Court referred several times to the principle of effectiveness in the justification of the judgement. This principle was used by the Court to prove that the provisions on payment order proceedings are inconsistent with EU law in the scope of consumer rights protection, because they make it impossible in practice, or excessively difficult, to exercise the rights conferred by EU law on consumer protection.

The Court, limiting itself to assessing whether a promissory note was issued correctly, does not need to examine whether a consumer loan agreement contains any abusive clauses or whether the information obligations of the lender have been fulfilled, etc. Therefore it limits the application of instruments of consumer protection.

Referring to CJEU judgement C-618/10 (Joaquín Calderón Camino), the Court indicated that on the one hand the court may refuse to issue the payment order when the authenticity and content of the bill of exchange raise any doubts, but on the other hand the claimants could always expect that the Court would not take any actions ex officio to establish whether any unfair commercial practices have been applied with respect to a defendant consumer. Recalling the ECJ judgement 106/77 (Simmenthal), the Court indicated that the effectiveness of EU law would be impaired if the national Courts were prevented from applying the national law because of inconsistency with EU law.

Relevance of the Charter of Fundamental Rights of the EU

Although the Court in this case did not refer to the CFREU directly, the problem recognised by the Court might be analysed with respect to Article 47 of the Charter – precisely the right to an effective judicial remedy. The Court concluded that provisions on payment order proceedings under a promissory note are inconsistent with EU law, because they limit the application of instruments of consumer protection, prevent the Court from establishing, ex officio, whether a consumer loan agreement contains any abusive clauses or any unfair commercial practices have been applied.

The reasoning of the Court was based upon the principle of effectiveness, but it appears that this problem might also be considered in the context of limiting the consumer’s right to an effective remedy. Namely, making it impossible or excessively difficult to exercise consumer rights in payment order proceedings actually means limiting the consumer’s right to an effective judicial remedy in the event of a breach of EU law on consumer protection.

The problem discussed in the case was also referred in the preliminary question, asked by the District Court in Siemianowice Śląskie to CJEU (case Profi Credit Polska, C-176/17). The question is reported at “Polish Private Law” at: http://polishprivatelaw.pl/promissory-note-enforcement-vs-an-ex-officio-review-of-unfair-terms-profi-credit-polska-c-17617/#more-7328 

The text is an outcome of the project “Roadmap to European effective justice (RE-Jus)”, co-funded by the European Commission (JUST/2015/JTRA/AG/EJTR/8703).

 

Posted on by Krzysztof Riedl in Consumer Law, Contract Law, General Issues

About the author

Krzysztof Riedl
Krzysztof Riedl

Ph.D. candidate at the Department of Civil Law at the University of Warsaw, a trainee legal adviser at the Warsaw Regional Chamber of Legal Advisers, an associate at the Polish law firm and a collaborator at INPRIS Institute for Law and Society. He prepares a doctoral dissertation on natural obligations in the Polish civil law.