THE BOTTOM LINE
- Contract Drafting is Key: A termination clause that is demonstrably more favorable to a consumer than the default statutory provision is unlikely to be deemed “unfair” under EU consumer law. This provides a clear benchmark for drafting enforceable commercial terms.
- Litigation Strategy Can Evolve: The Dutch appeals process allows parties to change factual and legal arguments. A position taken in a lower court is not necessarily binding on appeal, creating strategic flexibility and risk.
- Duty of Care Remains Paramount: While a specific contract term was upheld, the court reinforced the bank’s fundamental duty of care. Failure to assess a client’s financial capacity and prevent an “unacceptably heavy financial burden” still results in significant liability for client losses.
THE DETAILS
This case, an appeal in the long-running securities lease saga, centered on a dispute between financial services firm Dexia and a retail investor. The Hague Court of Appeal was asked to rule on two critical issues. First, whether the bank had breached its duty of care by allowing the client to enter into agreements that imposed an “unacceptably heavy financial burden.” Second, and more significantly for contract law, whether a clause demanding payment of remaining installments upon early termination constituted an “unfair term” under the EU Unfair Contract Terms Directive (93/13/EEC).
On the first point, the Court of Appeal confirmed the bank’s liability. Echoing the lower court, it found that for three of the four agreements, Dexia failed in its duty to properly assess the client’s financial situation. The court rejected Dexia’s arguments for a more favorable method of calculating the client’s income (who was a sole proprietor) and upheld the principle that this failure made the bank liable for two-thirds of the client’s losses stemming from paid installments on those contracts. This serves as a stark reminder that the foundational duty of care in offering complex financial products to consumers remains a primary source of litigation risk.
However, the Court reversed the lower court on the “unfair term” issue, providing a crucial insight for businesses. The lower court had nullified a clause in one agreement that required the client to pay for “remaining installments” upon early termination. On appeal, Dexia successfully argued that the client, not the bank, had initiated the termination. The Court then examined the fairness of the clause, which offered a 50% discount on the remaining payments. The decisive factor was a comparison with the default Dutch law at the time. Since the contractual provision was significantly more favorable to the consumer than the statutory alternative, the Court concluded it did not create a “significant imbalance” to the consumer’s detriment. Therefore, the clause was deemed fair and enforceable.
Source: The Hague Court of Appeal
