The reversed approach of the Italian Supreme Court (16 January 2020, No. 742)

The Italian Supreme Court recently ruled on a conflict of jurisdiction between two Italian courts in a case involving a guarantee issued by an individual who qualified as a consumer under the Consolidated Consumer Act [1]. The purpose of the guarantee was to secure the amount due by the guarantor's wife under a bank loan entered into in connection with the management of stationery shop owned by the latter.

The bank issued judicial proceedings before the Tribunal jointly against the borrower and the guarantor upon occurrence of defaulting payments under the loan. The Tribunal however declined its jurisdiction since the both the loan and the guarantee provided for the exclusive jurisdiction of the said court, except in case the client would qualify as a consumer. Under the Consolidated Consumer Act consumer means any individual acting for purposes, which are outside its trade, business, craft or profession. In the above-mentioned case, the Tribunal took the view that since the guarantee was ancillary to the loan and the borrower did not qualify as a consumer, then the guarantor could equally not qualify as a consumer.

The Tribunal's decision recalled the approach steadily taken - with few exceptions - by the Supreme Court ([2]), which stemmed from the conclusions taken by the European Court of Justice (the "ECJ") in the case C-45/96. In that case, the ECJ upheld that, pursuant to Article 2 of Directive 85/577 ([3]), "a contract of guarantee concluded by a natural person who is not acting in the course of his trade or profession does not come within the scope of the directive where it guarantees repayment of a debt contracted by another person who, for his part, is acting within the course of his trade or profession"([4])

The Supreme Court however reversed its approach taking into account the most recent decisions of the ECJ on this topic (please see below). According to the Supreme Court the guarantor may qualify as a consumer - subject to the existence of the relevant conditions - irrespective of the borrower acting for purposes outside its trade, business or profession (and hence irrespective of the borrower not qualifying as a consumer). Despite the guarantee being an ancillary agreement/covenant to the lending facility, the judge shall assess the existence of the requirements for the guarantor to qualify as a consumer separately from and irrespectively of the borrower not qualifying as a consumer ([5]).

The rationale behind the Supreme Court's decision is that the consumer protection set forth at European Union level (and enacted in Italy through the Consolidated Consumer Code) ought to be assessed having regard to the parties of each contract rather than to the nature of the contract itself.

This principle was made by the ECJ in the case C-74/15, in which the ECJ overturned the conclusions taken in the case C-45/96, stating that "(…) while a contract providing security or a contract of guarantee can be described, with regard to its purpose, as a contract which is ancillary to the principal contract which gives rise to the debt it secures (…) from the point of view of the contracting parties it presents itself as a distinct contract, as it is concluded between persons other than the parties to the principal contract. It is therefore as parties to the contract providing security or contract of guarantee that the capacity in which those parties acted must be assessed"([6]).

The Supreme Court's decision is in line with the most recent approach of the ECJ to consider the concept of "consumer" as "objective in nature" and therefore to "be assessed by reference to a functional criterion, consisting in an assessment of whether the contractual relation at issue has arisen in the course of activities outside a trade, business or profession"([7]). In the case subject to the Supreme Court's ruling, it was self-evident that whilst the borrower entered into a loan agreement for reasons connected with her business, this was not the case for the guarantor, who despite his being married with the debtor, did not act for business purposes. The Supreme Court also remarked that the assessment as to whether an individual acted as a consumer ought to be done in light of the factual elements, which may well trigger a different conclusion. On this basis, the Supreme Court upheld that the guarantor of a company who owned 70% of the relevant corporate capital could not qualify as a consumer, i.e. as having issued the guarantee for the benefit of the company (owned almost entirely by the same) outside the course of its business([8]).

Eventually with its January 2020 decision, the Supreme Court aligned itself with the most recent trend of the Court of Justice of the European Union and shed clear guidelines on the application of the consumer protection regime when it comes to deal with a guarantee ancillary to a loan agreement or to another main agreement.

Hence, the decision should be carefully considered as it may have significant impact on agreements already in place, in which respect it may open the door to new disputes, as well as on future agreements, which should comply with the principles laid down, by the Supreme Court and the Court of Justice of the European Union to avoid litigation exposure.