Background
The Unfair Terms Directive (93/13/EEC), which is implemented into UK law by the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083), harmonises the rules protecting consumers from unfair terms in consumer contracts. A term which has not been individually negotiated will be regarded as unfair if, contrary to the requirement of good faith, it causes significant imbalance in the parties' rights and obligations arising under the contract to the detriment of the consumer. Unfair terms are not binding on the consumer.
Pannon v. Sustikné Győrfi, a recent case from Hungary that was referred to the European Court of Justice (ECJ), highlights the need for suppliers contracting with consumers to ensure that their terms are fair – the mere fact that a consumer in dispute with a supplier does not allege unfairness will not prevent a court finding a contractual term to be unfair.
Facts
In December 2004, Sustikné Győrfi (C) entered into a mobile phone contract with Pannon, a Hungarian communications company. P's standard terms and conditions stipulated that P's nearest District Court had jurisdiction to hear any dispute under the contract. C and P entered into a dispute leading to P starting proceedings against C in the local District Court. C received an invalidity allowance and lived 275km away from the District Court. Under Hungarian procedural rules, C's home court would have jurisdiction but this had effectively been waived by C filing a defence with P's District Court.
The District Court doubted the possible fairness of the jurisdiction clause and referred the following three questions on the interpretation of the Unfair Terms Directive to the ECJ:
- Does a consumer have to directly challenge an unfair term successfully in order for that term not to be binding on the consumer?
- Is a national court, irrespective of the type of action, required to assess the fairness of a term in a consumer contract even if the consumer has not challenged its fairness?
- If so, what factors should the national court consider when it is assessing whether the terms of a contract are unfair or not?
ECJ Decision
First question
The ECJ held that it is not necessary for the consumer to contest the fairness of a term before a court may find that it is not binding. In coming to this conclusion the ECJ took the view that it would be contrary to the principle of consumer protection behind the Unfair Terms Directive if a consumer was required to challenge the unfairness of a contract term before a court could assess its fairness. A consumer could only be protected effectively if the national court acknowledges that it can evaluate terms of this kind of its own volition, without the requirement that the consumer raises the issue.
Second question
The ECJ held that, as the national court is required to ensure the effectiveness of the protection intended under the Unfair Terms Directive, it must examine the possible unfairness of a term of a contract even where the consumer has not challenged it. This is a duty of the national court, not merely a right or power. If the national court considers a term to be unfair, it must not apply it unless the consumer wants it to be applied.
Third question
In this case the ECJ confirmed that an exclusive jurisdiction clause favouring the supplier can be unfair but ultimately it is for the national court to assess the fairness of a particular term rather than for the ECJ to set out any particular guidelines. The case was therefore sent back to the District Court.
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