European Union: Croatian Law Providing For Retroactive Invalidity Of Credit Agreements In Croatia With An Unauthorized Foreign Lender Incompatible With EU Law

Last Updated: 11 September 2019
Article by Jasna Zwitter-Tehovnik

In a recent judgment1, the Court of Justice of the European Union (CJEU) ruled that national law may not, by means of a retroactive, general and automatic rule, invalidate credit agreements concluded with foreign lenders unauthorized to provide credit services in that Member State.

Facts of the Case

The underlying facts were not particularly complex - in 2007, the claimant - Ms Milivojević, a Croatian citizen, obtained a loan from an Austrian based bank, but via an intermediary resident agent, for the purpose of renovating her house and, particularly, creating apartments for rent. The loan agreement provided for an alternative jurisdiction clause in favour of either the Austrian or the Croatian courts. In addition, a mortgage was registered on the Claimant's property which was subject to Croatian law and executed in the form of a notarial deed. In 2015, Ms Milivojević initiated a claim at the referring Municipal Court of Rijeka (Općinski sud u Rijeci) against the Austrian banking entity for a declaration of invalidity of the aforementioned contractual arrangements and the removal of the mortgage from the land register.

Legal issues referred to the CJEU

The issues referred by the aforesaid municipal court to the CJEU relate, in essence, to the legal consequences on lending arrangements concluded between foreign credit institutions, not holding the authorization required to provide such services in the Republic of Croatia, and Croatian borrowers as well as certain aspects of international jurisdiction.

Indeed, subsequent to an amendment of the Croatian Consumer Credit Act in September 2015, article 19j of the aforesaid act provided for a nullity of a consumer loan agreement to the extent the creditor or the credit intermediary did not hold the required authorisation. In addition, according to the Croatian Act on the invalidity of credit agreements featuring international elements which entered into force in 2017, “credit agreements featuring international elements” and concluded in the Republic of Croatia between debtors and non-authorised lenders shall be null and void. This was précised in the aforesaid law to apply with retroactive effect even to credit arrangements concluded before the entry into force of the aforesaid act.

The referring court had doubts concerning (1) restrictions on the freedom to provide services within the European Union (Article 56 TFEU) potentially arising from national law; (2) international jurisdiction, i.e. whether the requirements set by the Croatian Act on the invalidity of credit agreements featuring international elements (Article 8(1) and (2) thereof) are compatible with Article 4(1) and Article 25 of Regulation (EU) No. 1215/2012; (3) consumer status, i.e. whether a debtor taking a loan for a dual purpose may be deemed a consumer, and (4) whether the dispute falls within the rules of exclusive jurisdiction for actions in rem.

Statements of the CJEU rendered in C-630/17

  • Firstly, the CJEU considered itself competent notwithstanding the fact that the credit agreement had been concluded prior to accession of Croatia to the European Union.
  • As of prime importance, the CJEU explicitly emphasized that a domestic provision providing for nullity of agreements concluded with foreign creditors (authorised in another Member State) but not being authorised in Croatia violates the principle of freedom of services (Article 56 TFEU) and goes beyond the restrictions allowed for protection of public order.
  • Moreover, the CJEU treated questions of international jurisdiction and stressed that the Brussels 1a Regulation provides for precedence of the competence of the courts of the domicile of the defendant and in the absence of a specific provision in line with the Brussels 1a Regulation, a provision being contrary to that principle conflicts with the European legislation.
  • The CJEU clarified also that it is on the domestic court to examine a consumer status of the borrower whereby the criteria for such classification would be viewed quite restrictively, so only if the borrower would gave such a tenuous link to the professional activity that the private purposes character of the credit agreement would dominate then a consumer status could be affirmed.
  • However, the exclusive jurisdiction and competence of Croatian courts as concerns claims for removal of the mortgages on real estate properties located in Croatia was confirmed due to the in rem nature of such rights.

The judgment is highly welcome for the CEE banking community as it reconfirms that discriminatory and retroactive closures of markets by national legislation will not be upheld.


1. C-630/17, 14.2.2019

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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