ECJ says courts must assess consumer contract jurisdiction clauses

Courts must make the checks regardless of whether or not any party in a dispute has asked them to, the Court said.

Contracts that companies ask consumers to sign for the provision of goods or services often have clauses in them which determine which court will be used in the case of a dispute. This is often a court close or convenient to the business, and can be one far from the consumer. This could have the effect of denying the consumer justice, the ECJ said.

"[A contract term which] obliges the consumer to submit to the exclusive jurisdiction of a court which may be a long way from his domicile ... may make it difficult for him to enter an appearance," said the ECJ ruling. "In the case of disputes concerning limited amounts of money, the costs relating to the consumer’s entering an appearance could be a deterrent and cause him to forgo any legal remedy or defence."

Consumer contracts tend to be written by the business and presented whole for agreement by a consumer, without negotiation on individual clauses. Because of this the European Union created the Unfair Terms in Consumer Contracts Directive, which renders unenforceable any consumer contract clause that was not negotiated and which was unfair.

The ECJ said that, in line with a ruling from it last year, courts had a duty in every case to examine clauses in consumer contracts which specify a court different to the consumer's nearest court as the place where the dispute will be heard.

The courts must first assess whether that contract term falls within the EU rules on unfair terms and then assess if it breaks them, the ECJ said.

"The national court must investigate of its own motion whether a term conferring exclusive territorial jurisdiction in a contract concluded between a seller or supplier and a consumer, which is the subject of a dispute before it, falls within the scope of the Directive and, if it does, assess of its own motion whether such a term is unfair," said the ECJ ruling.

The case involved Ferenc Schneider, who took out a car loan in Hungary from VB Pénzügyi Lízing Zrt. When Schneider failed to fulfil his obligations under the contract the company terminated the loan contract and took a case against him in the court identified in the contract.

Hungary's rules of civil procedure state that the court with jurisdiction in the dispute should have been the one closest to where Schneider lived. So the Hungarian court asked the ECJ if it could rule the jurisdiction term in that contract to be unfair, even if Schneider had not asked it to.

The ECJ said that yes it should, and that the ECJ had the authority not only to tell the court to do that but to advise it on the criteria to be used in judging a contract term fair or unfair.

"The jurisdiction of the Court of Justice extends to the interpretation of the concept of ‘unfair term’ used in Article 3(1) of the Directive and in the annex thereto, and to the criteria which the national court may or must apply when examining a contractual term in the light of the provisions of the Directive, bearing in mind that it is for that court to determine, in the light of those criteria, whether a particular contractual term is actually unfair in the circumstances of the case," said the ruling.

The ruling follows an ECJ judgment from last year in which a woman was told that legal action against her by her mobile phone provider would take place in a court 275 miles away.

The ECJ said in that case that courts have not just the right but an obligation to assess the fairness of jurisdiction clauses, and that only if courts do that will consumers be protected.