The European Court of Justice recently considered a case referred to it by a Romanian court, Horatiu Ovidiu Costea v SC Volksbank Romania SA C-110/14. This case involved the interesting question of when and to what extent a professional (in this instance a practicing commercial lawyer) can claim the benefit of consumer protection legislation.
Details of the case:
- Mr Costea entered into a loan agreement with Volksbank Romania in respect of personal borrowings not linked to Mr Costea’s profession.
- The security for these borrowings was a mortgage over a premises owned by Mr Costea’s sole practitioner law firm.
- Mr Costea entered into the loan agreement both in his capacity as the borrower and also in his capacity as a representative of his law firm.
- The separate mortgage agreement was entered into by Mr Costea in his capacity as a representative of his law firm.
- Mr Costea later petitioned the Romanian courts for relief under the Unfair Terms in Consumer Contracts Directive 93/13/EEC (the “Directive”) claiming inter alia that a contractual term of the loan agreement was unfair and that he should be considered a consumer for the purposes of the Directive.
Consumer or seller / supplier?
Under the Directive a “consumer” means any natural person who is acting for purposes which are outside his trade, business or profession. The Directive is intended to address the imbalance between a consumer’s level of knowledge and bargaining power and that of the “seller or supplier” (in this case, Volksbank Romania), where the terms were drawn up in advance by the seller or supplier and the consumer was unable to influence their composition.
- The ECJ held that the Directive must be interpreted as meaning that a natural person who practises as a lawyer and concludes a credit agreement with a bank, in which the purpose of the credit is not specified, may be regarded as a “consumer”, where that agreement is not linked to that lawyer’s profession or, in this case, the activity of the firm.
- The fact that the mortgage agreement was provided by Mr Costea’s firm (and not Mr Costea personally) did not determine Mr Costea’s status under the separate loan agreement and the level of technical knowledge possessed by Mr Costea did not preclude him from availing of the protections offered to consumers by the Directive. Consideration according to the Court must also be given to the bargaining position of the parties to the agreement relative to each other.
What lessons can be learned from this case?
A seller or supplier contracting with a business counterparty should be careful to protect their position by using contractual language confirming expressly that the counterparty is contracting in a business capacity. Such language is not always conclusive as the Directive will apply regardless of the language used if the underlying facts of a particular matter warrant its application.