Implications for Hungarian Law

4.1.2.1. Position of the Consultative Body of the Kúria

The Consultative Body set up by the Chairman of the Kúria to assess jurisdictional issues that arose in connection with lawsuits claiming the invalidity of foreign-currency loan agreements held a meeting on 10 October 2018. In interpreting Judgement C-51/17 of the ECJ, the Consultative Body came to the conclusion that it did not contain any new elements that had not been already developed by the European Court of Justice and that had not been taken into consideration by the Kúria in its law uniformity efforts. The Consultative Body stated that for the time being there was no need for the Kúria to issue new, general guidelines or to amend former ones.⁴⁵

At its more recent meeting of 10 April 2019, the Consultative Body of the Kúria added that in line with the statements on the unfairness of the information provided in judgements in cases C-26/13, C-186/1 and C-51/17, the guidelines set out in the integrative civil law decisions of the Kúria continue to be valid (Paragraph 3 of Judgment 6/2013 PJE, Paragraph 1 of Judgment 2/2014 PJE). In order to judge whether the information furnished on exchange rate risks was fair or not in a given case, all the available evidence needs to be considered, therefore no further general mandatory guidelines may be issued to the courts through law uniformity decisions in this subject.

The Consultative Body established that failure to provide information or furnishing inappropriate information on the exchange rate risks that lie with the consumer („not plain, not intelligible”), the provision of the contract which states that the exchange rate risks are borne by the consumer is invalid. Since this contractual provision concerns the principal supply of services, its invalidity entails the invalidity of the entire contract, as a result the consumer cannot be obliged to bear the exchange rate risks.

If bearing the exchange rate risk can only be inferred from certain clauses of the contract or through the joint interpretation of several documents (e.g. GTC, business rules, advertisement), that does not qualify as appropriate communication of information. The fact that the information sheet on exchange rate risks and the contract are signed simultaneously cannot be challenged if the party had sufficient time at his disposal to study it prior to signing the contract.

According to the Consultative Body the fact that the consumer did not act with due diligence caution, does not prevent him from claiming that the financial institution failed to meet its obligation to provide information or provided it in an inappropriate manner.

In order to judge whether the consumer acted with due diligence when he did not request further information from the financial institution, one has to take into account the potentially ambiguous, vague and complicated wording of the contract for the average consumer.

As set forth in the guidelines of the EJC, information is adequate if it is apparent from it that unfavourable exchange rate fluctuations to be borne by the customer are without any upper limit, which means that instalments may increase considerably as well as that the possibility of exchange rate fluctuations is a realistic scenario, which might occur during the term of the contract. The information should not only unambiguously clarify that exchange

45 The memorandum of the meeting of10 October 2018 of the Consultative Body of the Kúria is available in Hungarian at: http://kuria.birosag.hu/sites/default/files/konz_testulet/sajtokozlemenyc-51.17_masolata_0.pdf

rate fluctuations are to be reckoned with, but also that this implies risks which are not to be neglected and which might increase the repayment instalments significantly.

Another key statement of the Consultative Body is that if the upper limit of the expected exchange rate increase or its highest order of magnitude can be inferred from the plain and intelligible written or oral information, the consumer is liable for the exchange rate risks only the degree defined therein.⁴⁶ This is line with the judgement of the Regional Court of Debrecen (Debreceni Ítélőtábla) referred to previously, according to which in the event that the consumer may come to the conclusion from the information given at the time of concluding the contract that there is an upper limit to his exposure to exchange rate risks, any degree of risk-taking exceeding this limit is invalid (ÍH 2017. 56).

4.1.2.2. The Requirement of Conduct to be Expected from the Consumer

It is essential to stress once again from a doctrinal and practical viewpoint that, just as in former judgements, in the judgement handed down in case C-51/17 and in the recital of the judgement, incompleteness of information provided prior to the conclusion of the contract is confused with the not plain and not intelligible general (and individually not negotiated) contractual clause of the specific general term of the contract (lack of transparency).

In accordance with Paragraph 76 of the Judgement, as stated in Recital 20 of Directive 93/13, the consumer should actually be given an opportunity to become acquainted with all the terms of the contract. The ECJ stresses that information, provided in sufficient time before concluding a contract, on the terms of the contract and the consequences of concluding it, is of fundamental importance for a consumer in order to decide whether he wishes to be bound by the terms previously drawn up by the seller or supplier.

The statement of the European Court is incontestable. It should be added, however, that the consumer himself is also obliged to enquire about the contractual terms and the consequences of entering into the contract. In this respect he cannot exclusively rely on information received from the other party prior to concluding the contract. A certain level of obligation to inquire can be expected from the consumer too. As Lajos Vékás put it: the duty to inform only complements circumspect, prudent action that is required from everyone in conducting his own affairs.⁴⁷

It is conceivable that he had not received adequate information from the other party prior to entering into the contract, but he himself took the necessary steps, obtained the relevant information and thereby came to understand the contractual terms and the consequences of signing the contract.

In this regard we agree with the statement of the referring court in Case BDT 2013. 2889 that in accordance with the requirement of good faith and fairness and with the duty to cooperate, having regard to the nature of the long-term contract, the huge amount and risk involved, it can be expected from the consumer to gather information prior to concluding the contract. He should study the sheet containing the contractual terms with reasonable

46 The memorandum of the meeting of 10 April 2019 of the Consultative Body of the Kúria is available in Hungarian at: https://kuria-birosag.hu/sites/default/files/konz_testulet/emlekezteto_deviza_20190410.pdf

47 VÉKÁS: i.m. p. 88.

care expected from the average consumer and if he notices a provision that he does not understand, he should ask for proper explanation.⁴⁸

On the basis of the above, the findings of Recital 76 of the Judgement of the EJC that couples the opportunity to examine all the terms of the contract with information provided to the consumer before the conclusion of the contract should be supplemented. In fact, the consumer is also liable with respect to the opportunity to examine the contractual terms.

It is also questionable whether the not plain and not intelligible nature of a(n individually not negotiated) contractual term can be established based on the incompleteness of information provided before the conclusion of the contract. Although the information provided to the consumer prior to concluding the contract might have been incomplete, the relevant provision in the enacted contract can still be clear and understandable. The Declaration of Notification of Risk in Paragraph 10 of the loan contract in question contains fairly concrete and detailed information on the dangers of exchange rate risks to be borne by the consumer. This fact is established in recital 77 of the ECJ judgement. It would be difficult to argue that Paragraph 10 of the loan agreement is not clear and not intelligible for the average consumer who is reasonably well-informed, observant and circumspect, and therefore it is unfair. Nonetheless, it is possible that in this particular case the debtors had not received appropriate information on the exchange rate risk before concluding the contract. This is something that they have to prove before the court.

Thus, two different legal instruments and two issues are mixed: on the one hand whether debtors receive adequate information on the exchange rate risk and the associated dangers prior to the conclusion of the contract. On the other hand, whether Paragraph 10 of the loan agreement and its provisions on exchange rate risks concluded with the debtors is intelligible and plain.

This raises a further question, namely if the oral and written form of communicating information to the consumer are treated in the same way. Typically, communication of information before concluding the contract is provided orally. By contrast, the plain and intelligible nature of the contractual clause can only be assessed on the basis of the written text. Failure to provide oral information prior to concluding the contract or the incomplete, inadequate nature of such oral information does not entail the invalidity of the contract as its legal consequence. In this event the consumer may bring action for damages against the other party who failed to honour its duty to communicate information. The transparency (plain and intelligible nature) of the contractual provision, however, can only be judged from the written documents produced in connection with the conclusion of the contract. Therefore whether the nature of a contractual provision is plain and intelligible can hardly be established from the oral information that had been given to the consumer before concluding the contract.

We believe that in this context the following statement of the summary prepared on the meeting of the Consultative Body of the Kúria of 10 April 2019 also needs clarification: „If the upper limit of the expected exchange rate increase or its highest order of magnitude can be

48 The consumer as the debtor of the loan agreement with the bank may request this explanation from the notary, too. The majority of these contracts are acknowledged by a notarial act in order to ensure immediate enforcement. By virtue of Subsection a) of Section 120(1) of 1991 on civil law notaries, the notary is obliged to inform the concerned party about the nature and consequences of the legal transaction.

inferred from the plain and intelligible written or oral information, the consumer is liable for the exchange rate risks only the degree defined therein”. In fact, the lack of communication of plain and intelligible information preceding the conclusion of the contract is not a ground for invalidity, but a circumstance for bringing action for damages in favour of the consumer.

4. 2. Judgement in Case C-118/17

4.2.1. Facts of the Main Proceedings

On 24 May 2007, the debtor concluded a loan contract denominated in Swiss francs with a Hungarian bank. According to the terms of that contract, the loan should have been advanced in Hungarian forints by applying the CHF-HUF exchange rate based on the bank buying rate on that day. This resulted in a payment of HUF 14.734.000, the resulting amount of the loan in Swiss francs being CHF 115.573. The contract also provided that the loan repayments are to be made in Hungarian forints, the applicable exchange rate being however the selling rate practised by the bank. The judgment of the EJC highlighted that the exchange rate risk connected with fluctuations in the exchange rate of the currencies concerned was borne by the debtor.⁴⁹

On 12 April 2016, at the request of the bank, the notary public ordered the enforcement of the contract.⁵⁰ The debtor filed an objection to the enforcement. She claimed that the contract was null and void on the ground that it did not specify, in accordance with Article 214 (1) (c) of the former Act on Credit Institutions, the difference between the exchange rate applicable when the funds were released and the exchange rate applicable when the loan was paid off, the so-called exchange rate margin.

The Hungarian referring court decided to stay the proceedings and to request a preliminary ruling from the European Court of Justice. The Hungarian court addressed altogether five questions to the European Court.