Who: Jean-Claude Van Hove; CNP Assurances SA (“CNP”); the Court of Justice of the EU (“ECJ”)
When: 23 April 2015
Where: France and Luxembourg
Law stated as at: 11 May 2015
The ECJ has recently provided an interpretation of when a contract term might be regarded as unfair under the Unfair Terms in Consumer Contracts Directive (the “Directive”). The initial proceedings were brought in France by Mr Van Hove against CNP. Having taken out two mortgages, Mr Van Hove purchased insurance with CNP to cover the cost of mortgage repayments in the event that he became totally incapacitated and could not work.
After an incident at work, Mr Van Hove was judged to have partial incapacity which did not allow him to work full-time. However CNP refused to continue paying the mortgages as Mr Van Hove was still deemed fit to work part time.
Mr Van Hove brought legal proceedings against CNP based on an argument that the term in the contract which related to total incapacity was unfair – the insurance cover would only kick in if it was completely impossible for an insured person to work. He argued that the term of the contract was worded in such a way that it was unintelligible to a lay consumer and so caused a significant imbalance between him and CNP to his detriment.
By contrast, CNP argued that the term at hand could not be an unfair term as it specifically concerned the subject matter of the contract.
ECJ emphasises that clarity is key
Specifically, the French court looked at article 4(2) of the Directive, which says that an assessment of whether a term is unfair should not take into account the “definition of the main subject-matter of the contract nor the adequacy of the price and remuneration when compared against the good or services supplied, but only insofar as the relevant terms “are in plain, intelligible language”.
The French court referred the matter to the ECJ for further clarification, who stated that the first step would be for the national court to determine whether the term in question falls within the main subject matter of the contract. In this case, the French court was encouraged to consider the nature and general scheme of the contract as a whole, to assess whether the term in question deals with an essential component of the contractual framework of which it forms part.
If this proves to be the case, the ECJ said that the next step would be for the French court to consider whether the term is written in a sufficiently precise, plain and intelligible manner that the consumer, in this case Mr Van Hove, could evaluate the economic consequences which derived from the contractual term.
Why this matters:
The decision emphasises the need for contractual terms which go to the heart of a contract to be grammatically clear and transparent enough to enable a consumer to validly assess whether they will be benefited or disadvantaged.
Although the ECJ did not make a specific decision in this case, leaving the eventual decision to the French courts, the decision may nevertheless have an impact on consumer terms more generally, not just those in insurance contracts. The ECJ’s logic could apply to small print in advertising and advertisers will therefore need to be aware of the requirement for any such qualifications on ad copy to be adequately clear and understandable in order for the advertiser to be able to rely on it.
Referring to the requirement of transparency in the Unfair Contract Terms Directive, the ECJ said:
“Of fundamental importance to the consumer, therefore, for the purpose of complying with the requirement of transparency, is not only (i) the information given prior to the conclusion of the contract concerning the conditions as to liability, but also (ii) the information given concerning the specific features of the arrangements for covering the loan repayments payable to the lender in the event of the borrower’s total incapacity for work and the relationship between those arrangements and the arrangements laid down in respect of other contractual terms, so that the consumer is in a position to evaluate, on the basis of plain, intelligible criteria, the economic consequences for him which derive from it.”