Top court annuls rulings unfavourable to Swiss franc loan borrowers

Ljubljana – The Constitutional Court has annulled rulings by two courts that rejected borrowers’ request for annulment of contracts on loans in Swiss francs and for a refund of overpayments, in what is the first decision of Slovenia’s top court related to issue of Swiss franc loans.

The Constitutional Court has found that the rulings did not adequately address the concerns regarding the assessment of the standard of banks’ duty of disclosure and that of fairness, and has returned the cases for reconsideration.

The decision relates to the rulings of the Ljubljana District Court from July 2019 and of the Ljubljana Higher Court from May 2020, which were appealed by spouses Igor and Simona Ajdnik.

As the highest court in the country said in its decision, the appellants had noted the sensitivity of the issue as they had taken a Swiss franc loan to purchase a family home, and the hazardous nature of the deal.

They also drew attention to the detrimental consequences of the deal and the increase in the price of the loan for their social standing and family life, and noted the bank’s knowledge of the risks of the foreign exchange rate market.

The court said that the challenged rulings had been based on the premise that the fairness of the main subject of the contract, i.e the Swiss franc currency clause, is not assessed in the case when the duty of disclosure is fulfilled, and the assessment that the duty of disclosure had been fulfilled in the case in question.

The two courts had assessed that the currency clause had not been unfair, supporting the notion that the bank had acted in good faith by stating that when the loan contract was being concluded, it could not have anticipated major changes in the exchange rate to the detriment of the clients, and that it did not give specific or misleading guarantees.

The Constitutional Court also noted that the two courts had argued that there was no significant imbalance in the contractual rights and obligations as the bank had also borne the currency risk and was obliged to provide adequate collateral, with change in the currency ratio not bringing any benefit.

The case law of the EU Court of Justice stipulates that in the case of a Swiss franc loan, the client must be informed in clear and understandable language about all mechanisms that affect the repayment of the loan and their consequences in order to take a prudent and informed decision.

If this is not the case, the court must make an assessment of fairness, i.e. whether the bank acted in good faith or not, and whether it acted in line with the principle of conscientiousness, and whether there is a significant imbalance in rights and obligations between the parties.

Due to the precedent importance of the constitutional issues raised by the positions taken by the two courts, the Constitutional Court decided to test these positions in their entirety, meaning with regard to the duty of disclosure and with regard to fairness.

It said that it was not clear from the explanatory notes of the challenged rulings which explanation by the bank could make the borrower be aware of the actual consequences of a major depreciation of the domestic currency or a growth of the Swiss franc currency rate on the amount of the loan obligation.

As this is one of the key elements of the standard of duty of disclosure, the courts violated the right to a reasoned court decision referred to Article 22 of the constitution.

With regard to the assessment of fairness, the appellants had been drawing attention throughout the proceedings to the professionally qualified knowledge of the bank of the risks of the foreign exchange market, the Constitutional Court said.

On the basis of the 1993 EU directive on unfair terms in consumer contracts and the criteria developed by the Court of Justice for its interpretation, the arguments by the appellants constitute an element of assessment of fairness of a contractual condition that should be taken into account.

As the courts did not take a position on these arguments, they violated the appellants’ right to a ruling under Article 22 of the constitution, the Constitutional Court added.

The decision, published on Tuesday, was taken in a five-to-three vote, with constitutional justice Rok Svetlič issuing a dissenting opinion, and Constitutional Court president Matej Accetto issuing a concurring opinion.

The Bank Association of Slovenia said in a response that the Constitutional Court had not come to the conclusion that contracts on loans in Swiss francs were null and void, but that it had mainly examined certain positions taken by courts.

“The Constitutional Court noted that the lower instance courts did not take a position on all essential arguments by the appellants and the evidence. These procedural reasons thus refer to courts and not to banks,” the association added.

It also noted a dissenting opinion that says that if banks were to be obliged to take into account (all) personal circumstances of clients in the future, the effect would be unfavourable precisely for borrowers.

The association added that the decision of the Constitutional Court further confirmed that the cases of Swiss franc borrowers should be assessed on an individual basis and that regulating these issues by means of legislation was not appropriate.

This comes as the National Assembly is debating a bill that would distribute the cost of the surge in the value of the Swiss franc in 2015 between banks and some 32,000 borrowers who saw the cost of their debt in euros soar as a result.

Slovenian banks came out strongly against the bill, saying that it retroactively encroached on the lawfully concluded contracts, which was not harmful only for banks but for the entire economy.