The Croatian High Commercial Court rendered a new interesting decision in a long-lasting judicial process between consumers and banks with regard to the validity of CHF denominated consumer loans, by declaring both CHF currency clauses and variable interest clauses null and void. According to estimates, the banks may consequently be liable for up to EUR 2 billion.

As reported in the 6th and 9th issues of our DRInsider, as a reaction to significant increases in the exchange rate between Swiss francs and Croatian kuna, in 2012 the consumer association "Potroaač" ("Consumer") filed a lawsuit against the largest operating banks in Croatia in order to protect local consumers that had taken out loans denominated in Swiss francs. The claim was based on the theory that CHF currency clauses and variable interest rate clauses represented unfair provisions that should be deemed null and void. Following the initial approval of the claim by the Commercial Court in Zagreb, the dispute took different routes through several levels of appellate proceedings, involving the High Commercial Court, Supreme Court and the Constitutional Court. From the inception of the dispute, the courts more or less shared the same view that variable interest rate clauses were unfair and, thus, null and void. However, opinions diverged when it came to CHF currency clauses.

In its most recent decision published on 14 June 2018, the High Commercial Court held that the banks violated the consumers' rights by agreeing to the denomination of loans in Swiss franc.

Despite previously declaring that the currency clauses were easily intelligible and therefore binding for the consumers, the High Commercial Court now took a different approach after the case was remanded for reconsideration. The Court ruled that the banks failed to duly inform the consumers on all the necessary parameters important for making an informed decision about taking on Swiss franc denominated loans. This, apparently, resulted in an imbalance of contractual rights and obligations between the parties and therefore a breach of the mandatory provisions of Croatian law.

As to variable interest rates, the High Commercial Court maintained its earlier position by confirming that these were adjusted non-transparently. Variable interest rates were considered amended in accordance with internal regulations of the banks, without a proper notification to consumers regarding calculation methods and parameters. To resolve the problem, the Court now ordered conversion of the interest rates into fixed rates as applicable at the commencement of the life of the loans.

However, the latest decision is currently under appeal. Should the Supreme Court share the view of the High Commercial Court, this may enable thousands of consumers to file individual claims against the banks and demand the repayment of the amounts overpaid due to raging CHF exchange rates.

It remains to be seen whether the ruling of the High Commercial Court will be upheld by the Supreme Court in the final chapter of this exhausting, yet interesting judicial saga. We also look forward to seeing how other related issues, such as the question of the loan conversion from CHF to EUR and the validity of variable interest rates in other currencies, will be resolved by the Croatian judiciary in the aftermath of this decision.

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