The ruling of the EU Court, which was decided in favor of consumers at the request of an appellate court from Romania regarding the case of debtors in Swiss francs (CHF), is referred to by the Franak Association as a historic victory for all CHF debtors and they believe it should be binding for Croatian courts, as well as a good starting point for defense at the arbitration court in Washington.
In the Romanian process, which at the first instance ended in favor of the bank, the plaintiff argued in the appeal that the bank could have predicted changes and fluctuations in the exchange rate of the Swiss franc and that in this sense the exchange rate risk was inadequately presented, and the bank did not explain that the Swiss franc significantly fluctuates against the Romanian leu, said Denis Smajo from the Franak Association at a press conference on Thursday, presenting the chronology of the EU Court ruling from September 20, 2017, which was made in case C-186/16, at the request of the appellate court from Romania.
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The EU Court decided that the bank must provide the consumer with sufficient information for reasonable and informed consumer decisions regarding the loan, that the information must be clear at both grammatical and formal levels, and that the functioning of the contract mechanism, including the currency clause both independently and in combination with other contractual provisions, must be clearly presented.
The EU Court ruling also states that it is not enough for the average consumer to understand that the exchange rate can rise and fall, but that the consumer must be able to assess the potential significant economic consequences that the currency clause could cause in the future based on the information provided, Smajo noted.
One of the conclusions of the EU court states that the national court must assess the unfairness of the currency clause based on all of the above, for example, that when deciding on the unfairness of a contractual provision, the time of contract conclusion and all circumstances that the bank, as an expert and professional, could have known when offering the loan, which could later affect the execution of the contract, must be taken into account.
The Franak Association therefore believes that the latest ruling of the EU Court undoubtedly requires the Croatian Supreme Court to assess the unfairness of the contracted CHF currency clause for all eight defendant banks in the repeated review, as mandated by the Constitutional Court of Croatia in December 2016.
Likewise, the Supreme Court, they emphasize, must assess whether the bank acted in good faith regarding the lack of information about possible exchange rate changes and the risks inherent in entering into contracts in foreign currency, primarily taking into account the expertise and knowledge of the bank as a provider of such services and assess whether it is reasonable to expect that consumers would accept the disputed provision if they were aware of all the risks they were exposing themselves to.
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The Association hopes that the Supreme Court will align with the ruling of Judge Radovan Dobronić, who determined that CHF is not a stable currency, that CHF was covered by derivative instruments, not by citizens’ deposits or foreign loans, that it is a currency into which capital flees in times of crisis, and that the Croatian National Bank protects the exchange rate of the kuna against the euro, but not against the CHF.
“The EU Court has confirmed everything that the Franak Association has been stating for years with this ruling,” emphasized Franak Association member and MP Goran Aleksić, adding that the mentioned ruling is extremely significant, as it is a ruling of the EU Court whose rulings are binding for all courts of EU member states, and therefore bind all courts in Croatia.
If the Supreme Court confirms the ruling of Judge Radovan Dobronić, Aleksić says, the following possibilities open up: that all existing CHF loans be recalculated into kunas at the initial exchange rate and initial fixed interest rate, then that all converted CHF loans, now euro loans, be recalculated into kunas in accordance with the repayment plan at the initial exchange rate and initial fixed interest rate, and finally that all former CHF debtors who have refinanced or repaid loans be compensated for the difference that follows from the repayment plan at the initial exchange rate and fixed initial interest rate.
“If the Supreme Court decides again as it did the first time and rules contrary to EU law and the decisions of the EU Court, the Franak Association will submit a new lawsuit to the Constitutional Court through the Consumer Association,” Aleksić emphasized among other things.
According to him, the ruling of the EU Court also confirms the Association’s claims that the arbitration center in Washington is not competent to decide in the dispute that Unicredit initiated against Croatia regarding the conversion of CHF loans, as well as that this procedure is being conducted completely unfounded. The arbitration center is not part of the judicial system of the European Union, and therefore its decisions are not and cannot be in accordance with EU law, they claim in the Franak Association.
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His words were confirmed by EU law expert and candidate for Constitutional Judge Goran Selanec, who stated that such a ruling also puts Croatia in a favorable position regarding the Conversion Act.
“One of the reasons why Croatia defends the Conversion Act is that it was necessarily required due to the way banks treated consumers and did not want to adapt to the fact that it is an extremely risky business, and that such a law was then the only way Croatia could take at that moment to cut the Gordian knot and protect those who found themselves in trouble. I believe that Croatia is in a fairly favorable situation regarding the justification of the Conversion Act and that it has much better grounds for defending it and discussing whether that law was good enough and proportionate to the EU legal order than some arbitrations in the USA,” Selanec noted.
Contrary opinion from HUB
Croatian banks at the time of contracting loans linked to the Swiss franc (CHF) could not predict the movement of the CHF exchange rate, stated the Croatian Banking Association (HUB) on Thursday, explaining that this ruling of the EU Court regarding CHF loans in Romania has no direct impact on Croatia, contrary to what the Franak Association emphasizes.
“In light of the European Court ruling concerning the case of Romanian debtors on loans in Swiss francs, HUB wishes to clarify the circumstances of contracting loans with a CHF currency clause and to predict to what extent the mentioned ruling has no direct impact on Croatia, which is exactly the opposite of what the Franak Association emphasizes,” they state from HUB, presenting their positions in five points.
From HUB, in the first point, they state that the EU court ruling emphasizes that the key question is the time at which any unfairness of the contract should be assessed. According to the ruling, this is exclusively the time of contract conclusion. The key question is whether the bank knew or should have known years in advance about future exchange rate movements and whether it could have predicted the appreciation of the CHF, which is unprecedented on a global scale.
“The answer is clear: Croatian banks (nor any other institutions in Croatia) at the time of contracting loans linked to CHF could not have had any knowledge about the movement of the Swiss franc exchange rate,” they claim from HUB.
In the second point, they emphasize that Croatian, as well as other banks in the world, were not allowed to speculate on the foreign exchange market, but had to be indebted in each foreign currency to the extent that they had receivables in that currency. Therefore, any change in the exchange rate of a foreign currency was neutral for Croatian banks. If the exchange rate appreciated, it equally reflected on their receivables and their obligations in the same currency, HUB states.
“By referring to the relevance of the moment of contract conclusion, the ruling clearly indicates that any possible subsequent imbalance in the burden of obligations can no longer be a reason for examining the fairness of the contractual provision. This position is also in line with the recent ruling of the Romanian Constitutional Court (number 62 of February 7, 2017), which assessed the regulation on the forced conversion of CHF loans as unconstitutional,” is the third point from HUB’s statement.
In the fourth point, they state that “Croatian banks did not contract any ‘mechanism’ by which the calculation of the kuna equivalent of CHF into kunas could be performed, and least of all did they apply any own exchange rates or exchange rate policies, but contracted the average exchange rate of the Croatian National Bank, as a publicly available and independent criterion by which the kuna equivalent of the obligation is calculated.” They add that this is a complete difference compared to CHF loans in Hungary where different creditor exchange rates were applied.
“Finally, the ruling of the European Court of Justice does not relate at all to loans with a currency clause, but to loans granted in foreign currency,” they emphasize in the fifth point from HUB.
“Therefore, Croatian banks at the time of contracting loans linked to CHF did not possess any specific knowledge that they would have kept as their own ‘mechanisms’ and would not have communicated to consumers,” concludes HUB’s statement.
