Before the National Assembly adopted the law aimed at protecting Swiss-franc borrowers from currency risk on 2 February 2022, the Constitutional Court of the Republic of Slovenia adopted its first decision on the matter on 13 January 2022, ruling on the constitutional appeal brought by the appellants, borrowers (consumers) under the credit agreement in Swiss francs, against the judgment of the High Court of Ljubljana (ref. no. I Cp 250/2020 of 11 May 2020) and the partial judgment of the District Court of Ljubljana (ref. no. P 442/2018 of 9 July 2019), by which their claim against the bank was rejected. With its decision, ref. no. Up-14/21-30, the Constitutional Court overturned the abovementioned judgments and referred the case back to the first instance court.
By their action against the bank, the appellants sought from the court(s) to declare the Swiss franc credit agreement and the agreement on securing the money receivable as void, repayment of the money (namely the alleged overpayments) and the invalidity and deletion of the mortgage, registered as security for the obligations under the credit agreement. They pleaded the invalidity of the transactions, entered into with intention to provide financing for the purchase of a family home, by claiming the unfairness of a contractual term (the currency clause) due to the bank’s breach of its duty of disclosure and of the principle of good faith and fair dealing in relation to the bad faith conduct. In addition, they argued the existence of a significant imbalance in the contractual relationship and emphasized their particular sensitivity due to the purchase of the family home as a fundamental subsistence good and the (excessive and unusually) risky nature of the transaction, while also pointing out the adverse consequences for their social status, personal development and family life.
The judgments contested by the constitutional appeal, were based on two independent supporting positions, whereby each of them may justify the rejection of the appellants’ claim on their own. The first position consists of (i) the initial premise assuming that (un)fairness of the main subject matter (the currency clause) is not to be considered at all if duty of disclosure has been met, and (ii) the assessment of compliance with duty of disclosure in the respective case. In its second position, the court made a substantive assessment of the contractual term (the currency clause) and concluded that it was not unfair.
According to the established constitutional case law, if the contested decision is based on two (or more) supporting positions, the appellant must prove the unconstitutionality of both (or all) positions in order to succeed with the appeal. In Constitutional Court’s opinion, the initial premise of EU law according to which the court shall always verify the clarity and intelligibility of a contractual term (including the fulfilment of the duty of disclosure), relating to the main subject matter of the contract, and the connection of such premise’s meaning to the assessment of the (un)fairness of the contractual term, allows the limitation of the Constitutional Court’s assessment only to the alleged infringements regarding the standard of duty of disclosure assessment. However, due to the precedential significance of the issues raised by both courts’ positions, the Constitutional Court decided to examine both of them.
In assessing the above-mentioned positions, the Constitutional Court considered that the parties’ contractual freedom, by which the courts (relying on the case law of the Supreme Court) justified the limitation of their assessment only to the issue of the clarity and understandability of a contractual term (fulfilment of the duty of disclosure) by interpreting the Consumer Protection Act, is an expression of the general freedom of conduct under Article 35 of the Constitution. The latter depends on social integration and on the principle of social inclusion as an integral part of the principle of the welfare state set out in Article 2 of the Constitution. The judiciary is obliged to recognise and protect contractual disposals and may not, in principle, interfere with them. However, such requirement reflects only the negative (”defensive”) aspect of the contractual freedom. Due to effective enforcement in social reality, such aspect is placed in a mutual value co-determination with a positive aspect. In respective case, this aspect represents an obligation to evaluate the need for legal protection (unfairness assessment) on the basis of the appellants’ wider legal position. This is particularly accentuated in the circumstances of the bank’s relationship with the consumer, as particularly asymmetrical (in terms of information, wealth and expertise). In such relationship the possibility of excessive (or exclusive) assertion of the stronger party’s interests, and thus the risk of exercising a mere semblance of autonomy, cannot be ruled out.
In the light of the aforesaid, pursuant to the Constitutional Court’s view, the categorical conclusion that assessment of unfair nature of the contractual term is never legally relevant if the duty to clarify (i. e. clarity and understandability of a contractual term) has been met, is not in conformity with the freedom of action provided for in Article 35 of the Constitution of the Republic of Slovenia The personal circumstances invoked by the appellants (namely that the purpose of credit is satisfaction of their basic life necessities, the bank’s awareness of their financial situation and the fact that they are repaying the credit with their current income in the local currency, as well as the element of unlimited and unpredictable risk of the transaction) may also, by their very nature, justify a claim for positive (and not merely negative) protection of contractual freedom based on general freedom of action (Article 35 of the Constitution), as dictated by the principle of the welfare state (Article 2 of the Constitution).
In the context of its assessment of the first position, the Constitutional Court also examined the content of the standard of the duty of disclosure. Thereby it agreed with the courts’ view that the duty of disclosure does not require to provide information in a specific manner. However, according to the criteria set out by the CJEU, the Constitutional Court considers that an average consumer shall be provided with information enabling him to assess the actual risk deriving from entering into a credit agreement. In case of a credit agreement with a currency clause (with a concurrent foreign variable interest rate), this is expressed primarily as the potential increase in the consumer’s credit obligations. According to Constitutional Court’s view, the contested judgements haven’t explained which of the bank’s explanation (or material) could and should have made the applicant aware not only of the exchange rate fluctuations and the possibility of changes in the amount of the instalments, but also of the actual consequences of the significant depreciation of the domestic currency (and of the increase in foreign interest rates) on the amount of his credit obligations for the entire period of the repayment of the credit. Whereas this represents a key content of the duty of disclosure standard, the courts also infringed the appellants’ right to a reasoned decision under Article 22 of the Constitution in that respect.
With regard to the courts’ second position (i.e. assessment of the contractual term’s unfairness), the Constitutional Court pointed out that the appellants emphasized the bank’s expert knowledge of the currency market and the nature of the risks involved throughout the proceedings. They associated such knowledge to the key features of the long-term credit agreement in foreign currency and the transparency of their own asset position for the bank. These themselves constitute a relevant element for assessing the (un)fairness of a contractual term according to Article 3(1) of Directive 93/13/EEC and the criteria developed by the CJEU. Considering the foregoing, pursuant to the Constitutional Court’s view, the appellants’ submissions that (i) they took a housing loan, intended to provide their basic life necessities, (ii) the risk for a housing loan was unusual, unpredictable and unlimited and they (unlike the bank) could not evaluate and control; and (iii) the loan was repaid with the family’s current income in local currency, which endangered the social situation of the family and the possibility of personal development of the family’s members. By failing to address these aspects in their assessment of unfairness, the courts infringed the appellants’ right under Article 22 of the Constitution.
Two dissenting opinions were adopted on the decision: an affirmative dissenting opinion by Dr Matej Accetto, Judge, and a negative dissenting opinion by Dr Rok Svetlič, Judge, who was accompanied by Dr Dr Jaklič, Judge.
In his affirmative dissenting opinion, Dr Accetto agrees with the emphasis placed on the importance of the duty of disclosure and the finding that (at least in the light of the contested judgments’ reasoning) such duty has not been met. However, Dr Accetto disagrees with the Constitutional Court’s view on both courts’ positions being mutually independent and that each of them may justify the rejection of the appellants’ claim. He opines this only applies if the duty of disclosure is satisfied and thus the question of the (un)fairness of the main subject-matter of the contract is not even relevant and the answer to such irrelevant question cannot influence the decision. Finding of the fairness of a contractual term does, however, not in itself render the duty of disclosure irrelevant.
In his dissenting opinion, Dr Svetlič strongly criticised the consideration of personal circumstances in the respective case. As pointed out therein, the obligation of taking into account the borrower’s personal circumstances while granting the credit, may have an adverse effect on the borrowers themselves, thereby interfering with their freedom of contract, the very constitutional category the Constitutional Court’s decision seeks to protect. Dr Dr. Jaklič, who joined the dissenting opinion of Dr Svetlič, also raised an interesting concern on how to delineate such transactions from the multitude of other comparable, perhaps much more high-risk and unpredictable transactions that (particularly in modern times) occur.