Return to the first contract possible but not at the expense of the consumer

Facts

In 2007, the consumer AS concluded with the bank a mortgage debt agreement of PLN 415 thousand, for the period until December 2021. In 2008, the parties to this agreement signed an annex on the basis of which the amount of the debt to be repaid was increased to PLN 465 thousand. They then signed a second annex (hereinafter: Annex 2), according to which, among another things, the amount of the debt to be repaid was converted into Swiss francs; the debt was repaid in PLN and the amount of monthly repayment instalments was calculated on the basis of the exchange rate in force in that bank. A fresh maturity for the debt was set at 20.12.2026.

In 2022. AS she brought an action before the territory Court in Warsaw (the referring court) to establish that the index clauses contained in Annex 2 were invalid and, in the title of a possible request, to establish that the mortgage debt in question was invalid in its entirety. That court referred the following question to the Court of Justice for a preliminary ruling: did Articles 6(1) and 7(1) of Council Directive 93/13/EEC of 5.4.1993 on unfair terms in consumer contracts (OJ L L 95, p. 29), as well as the principles of effectiveness and proportionality, should be interpreted as precluding the judicial explanation of national rules, according to which, in the event that, in the annex to the contract, the unlawful contractual provisions leading to the annulment of that annex were entered into, the amendment is considered to be never invalid and the contract is considered to have been valid from the beginning unchanged? The order for mention stated that, in accordance with the case law of the Polish ultimate Court, the nullity of Annex 2 results in the restoration of the first conditions of the disputed mortgage credit agreement, which were replaced by that annex.

TS Position

The Court stressed that ability to maintain – in accordance with national law – contracts without its unfair terms should be examined on the basis of objective approach. Under these circumstances, the continuation of the contract may not depend on the disproportionate possible effects of its annulment in relation to the nonsubjective of consumer protection under Directive 93/13.

According to the case-law of the TS, the consequences of establishing the unfair nature of the condition contained in the contract concluded between the trader and the consumer should in any event let the legal and factual situation of the consumer to be restored in the absence of that unfair condition ( TS judgement of 30.4.2025, AxFina Hungary, C-630/23, Legalis, paragraph 48). In this regard, by requiring, in view of the unfair nature of the conditions of the annex to the contract, the restoration of the first terms of that agreement, which have been replaced by that annex, the Polish national jurisprudence in rule leads to the restoration of the legal situation in which the consumer would be in the absence of those unfair conditions.

However, the TS stressed that if the national court may have changed the content of unfair terms contained in contracts, that is the power could jeopardise the long-term objective laid down in Article 7 of Directive 93/13. This right would de facto destruct discouraging effect on entrepreneurs by simply failing to apply specified unfair conditions to consumers, as they would inactive be encouraged to apply these conditions, knowing that even if they were to be cancelled, the agreement could, however, be supplemented to the degree essential by the national court, so as to warrant the interests of these traders.

Meanwhile, restoring the terms of a given contract, from which the parties were already planning to free themselves, may, according to the TS, not only undermine the effectiveness of consumer protection guaranteed by Directive 93/13, but besides jeopardise the accomplishment of the nonsubjective of Article 7 of Directive 93/13of deterring an entrepreneur from utilizing unfair termsthe nonsubjective of removing these unfair conditions. Restoring the first terms of that agreement may cause negative consequences for the consumerwhich consequence straight from the removal of unfair terms.

In the present case, the Polish Government has indicated that the restoration of the interest rate as agreed in the first agreement would entail a refund by the borrower of the amounts corresponding to the difference between the application of the rate set out in Annex 2 and the rate set in the first agreement for the period following the conclusion of that annex. In addition, since the parties to the contested mortgage credit agreement agreed in Annex 2 to modify the maturity of that debt in favour of the borrower, in peculiar in the form of an extension of the repayment deadline, the restoration of the maturity agreed in the first agreement could besides prove to be detrimental to the consumer.

TS indicated that there is simply a hazard that entrepreneurs will not be discouraged to apply unfair terms if the first terms of the contract, which the parties intended to replace by an annex containing conditions the unfair nature of which has been established, could be restored to replace the unfair terms contained in the annex. In particular, where a trader benefits from specified a restoration of the first conditions, the deterrent effect – in peculiar the work to return to the consumer the unduly obtained benefits obtained at the expense of the trader on the basis of an unfair condition – may be partially offset. The Court found that, in any event, it is for the national court to examine what was the will of the parties to the agreement erstwhile they amended its content by concluding an annex.

In conclusion, the TS held that Article 6(1) and Article 7(1) of Directive 93/13 and the principles of effectiveness and proportionality should be interpreted as meaning that they do not preclude national jurisprudence, according to which the uncovering of unfair conditions for the annulment of an annex to the agreement concluded between an entrepreneur and a consumer on a mortgage credit agreement results in the restoration of the first terms of that agreement, which was to replace those unfair conditions, provided that they are duly taken into account as a consequence of specified a restoration of those first conditions, the negative consequences for that consumer and the benefits for that trader, so as to guarantee that the restoration of those first conditions would let a real balance to be established between the rights and obligations of the parties to the contract and thereby guarantee effective protection of the consumer, without undermining the accomplishment of the deterrent nonsubjective pursued by that directive.

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