Dispute over mortgage loan fees revisited

Czech Republic: Czech Constitutional Court does not rule on the merits; Supreme Court condones lump-sum loan fees

The competent general courts of first instance in the Czech Republic continue to hand down controversial and divergent judgments in the matter of whether monthly lump-sum fees for mortgage loans are lawful: in two cases, a court accommodated claims of bank customers, but most courts dismiss such claims, giving a variety of grounds for their decisions.

Most of the dismissive rulings perceive the lump-sum clauses to be a clause in which the parties agree on the price; as such, they are removed from a judicial review of their contents, both pursuant to the old Czech Civil Code (Sec. 56 (2)) and pursuant to the new Civil Code (Sec. 1813 Sentence Two) which in this respect conforms to European Directives (namely, Unfair Contract Terms Directive 93/13/EC and Consumer Rights Directive 83/2011/EC). Even where these courts concede that the General Terms and Conditions (in which the said lump-sum payments were agreed) are open to scrutiny, they usually do not see these T&C to be in conflict with the applicable law – following the principle of pacta sunt servanda, say the courts, consumers must honor the obligations which they assumed.

Those courts which have accommodated the claims of consumers argued, firstly, that lump-sum clauses are not clauses in which a price has been negotiated and, secondly, that the clauses in question were incomprehensible or unfair, and thus null and void.

One thing all these decisions have in common is that they are final and non-appealable, as the value in dispute was in each case less than CZK 10 000 (approx. EUR 350), and thus below the threshold for appeal. Nor is “dovolání” (an appeal on points of law) an available remedy against these judgments, as they are first-instance decisions.

On 10 April 2014, the Czech Constitutional Court heard for the first time a constitutional complaint by a bank customer against a judgment which had confirmed the fee clause to be lawful and effective (in the case at hand, the sum in dispute was CZK 7 200). While the decision elaborates at length on the case, it contains no answer to the question whether the agreement on such a lump-sum fee in the general terms and conditions of a mortgage-backed loan agreement holds water. Rather, the Constitutional Court merely confirmed again two of the principles by which it stands – namely, that it is not some sort of “super-appellate body” and not in a position to review the interpretation of simple statutory law, and that those provisions of the Czech Code of Civil Procedure are constitutional which deny the legal remedy of appealing to a higher instance in small claims cases. Given that the case at hand involved no apparent breach of constitutional law, the Constitutional Court dismissed the constitutional complaint against the court judgment. However, it should be noted that it did not take position on the lawfulness of lump-sum fees as such.

Precisely because of the fact that the amounts in dispute were always rather negligible, none of the mortgage fee claims so far have gone to appellate court or been subject to a court review on points of law. However, the civil-law senate of the Supreme Court has issued an opinion on these cases on 23 April 2014, concluding that “clauses are not necessarily insufficiently specific simply because they do not list the exact scope of services”, and that “the ban on clauses in consumer contracts which, in contravention of good faith and at the detriment of the consumer, create a material imbalance between the respective rights and obligations of the parties, does not apply to clauses in which the parties agree on a fee for the administration of a loan”.

Dr. Stephan Heidenhain, Senior Associate

 

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