Good information on how a loan in foreign currency works – Business

Coincidentally, the First Civil Chamber publishes a new judgment on loans denominated in foreign currency the day before an important decision by the Court of Justice of the European Union, whose commentary will soon appear in Dalloz actualité (CJUE Sept. 8, 2022, cases C-80/21 to C-82/21). This new stop is intended for Newsletter and it is a continuation of several decisions that we have commented on in recent months (V. e.g. Civ. 1D, 20 Apr. 2022, No. 19-11,599 FS-B, Dallas news, 12 May 2022, obs C. Helaine; D. 2022. 789 ; RDI 2022. 382, ​​obs. J. Bruttin ; and April 20, 2022, No. 20-16,316 FS-B, Dalloz news, May 12, 2022, obs. C. Helaine; D. 2022. 788 ; RDI 2022. 382, ​​obs. J. Bruttin ; RTD com. 2022. 361, ob. D. Legais ). All this makes it possible to contribute to the development of a real jurisprudence on these loans, whose toxicity is sometimes quickly consumed. In the judgment of 7. September 2022, we are not talking about “Hell Immo” loans, but about “Jyske Bank” contracts, the operation of which is still slightly different. Let’s recall the facts to better understand the problem. They are standard in this area: after the loan offer accepted on June 20, 2007 and formalized by notarial deed of October 30, 2007, a banking company grants a borrower a so-called “multi-currency” loan of €500,000 or, depending on said clause, ” the equivalent, on the loan drawdown date, in one of the main European currencies, US dollars or Japanese yen”. The loan amount was drawn at 834,750 Swiss francs and on 16 June 2011 the bank converted it into euros. The borrower is suing the bank for cancellation of the conversion, citing an irregularity in this operation (based on the control of abuse clauses) and a failure to fulfill its information obligations. On appeal, the trial judges rejected the request to have certain clauses in the contracts declared unfair, as these provisions relate to the subject matter of the agreement and are drafted in a clear and understandable manner. With regard to the duty to inform, the Court of Appeal excludes any breach, in particular due to the sending of a letter informing the future borrower of possible market variations before the conclusion of the contract. Borrower appeals in cassation.

The judgment handed down by the first civil chamber of the Court of Cassation leads to a double case due to a lack of legal basis. We will examine why through the issue of abuse clauses and the information provided by the lender of money.

On the art of controlling the application of the control with unreasonable terms

The case law of the Court of Cassation regarding loans in foreign currency is fairly regularly based on the rules that protect consumers against unfair terms. As such, it must be noted that the supposedly unwritten sanctioning of these clauses is indescribable, as the First Civil Chamber had occasion to recall recently (Civ. 1)D, 30 Mar. 2022, No. 19-17,996 FS-B, Dallas news, 4 Apr. 2022, obs. C. Helaine; D.2022.974 notes J. Lasserre Capdeville ; RDI 2022. 382, ​​obs. J. Bruttin ; Rev. practice rec. 2022. DKK 31 K. De La Asuncion flight ; Civil RTD. 2022. 380, note H. Barber ; RTD com. 2022. 361, ob. D. Legais ) while leaving a door ajar on the implementation of this jurisprudence in common law (see, for example, for articulation, comm. 26 Jan. 2022, no. 20-16.782, Dalloz actualité, 1eh Feb 2022, ob. C. Helaine; D.2022.539 observes S. Tisseyre ; ibid. 725, note N.Ferrier ; ibid. 1419, crown. S. Barbot, C. Bellino, C. de Cabarrus and S. Kass-Danno ; Civil RTD. 2022. 124, ob. H. Barber ). In the court case that led to the annotated appeal, it was on the basis of the conditions for investigating unfair terms that the discussion was brought. As such, it must be remembered that the protection provided by consumer law in the form of unfair terms cannot concern the provisions on the subject of the contract, provided that these are drafted in a clear and understandable manner.

The appellant found that the said protection should also apply as far as the specific scope of the said clauses is concerned. The first civil department therefore recalls the latest jurisprudence of the European Court of Justice on this subject (Court on 10 June 2021, cases C-776/19 to C-782/19, Dalloz news, on 9 July 2021, obs. JD Pellier , judgment cited in point 8 of the annotated judgment, D. 2021. 2288 note C. Aubert de Vincelles ; ibid. 2022. 310, ob. R. Boffa and M. Mekki ; ibid. 574, notes H. Aubry, E. Poillot and N. Sauphanor-Brouillaud ; RDI 2021. 650, note J. Bruttin ; RTD com. 2021. 641, ob. D.Legeais ). According to this decision, it must be checked whether the bank has made the borrowers available sufficient and concrete information to understand the operation of the financial mechanism of the loan denominated in foreign currency,ÂÂ on the one hand and on the other hand if the bank has provided sufficient information about the risk of these contracts, especially in case of depreciation of the currency in which the borrower receives his income compared to the account currency. The judges of the court had clearly noted here that the clause was drafted in a clear and understandable way, while at the same time it related to the object of the contract. However, as fair as this reasoning is in the classic unfair terms lawsuit, it does not correspond to the previously cited 2021 case law; the appeal judgment of 6. February 2020.

There is therefore no factual error, which explains the cassation due to a lack of legal basis. In short, it is necessary to check in concrete terms This double information (operation of the financial mechanism and risks incurred) to be able to reject the request due to a clause regarding the subject of the contract. The referring court could also make a decision in the same direction, but with different reasons, depending on the information in the case files. However, if one of these two pieces of information is missing, the control of unfair contract terms must come into play. The result is uncertain because the clauses are not all drafted in the same way (see e.g. Civ. 1D20 April 2022, no. 19-11,599 FS-B and 20 April 2022, no. 20-16,316 FS-B, prec.).

On the information issued by the lender of funds

The second plea criticized the judgment for rejecting the request due to the bank’s lack of information. The argument was based on the inadequacy of the mail sent, which had been used by the trial judges to deny any breach of the said obligation. The Court of Appeal had also noted that a normally prudent investor knew the consequences of such a loan, especially due to the possible change in exchange rates. The plaintiff complained that the trial judges did not seek effective information about the risks associated with this type of loan.

Here again we find a cassation due to lack of legal basis based on contractual liability, i.e. article 1147 of the Civil Code in its wording prior to ruling No. 2016-131 of February 10, 2016, since the contracts were concluded in 2007 The First Civil Chamber recalls its usual jurisprudence: “when it grants a loan denominated in foreign currency, which determines, that this is the account currency and that the euro is the payment currency, which has the effect of placing the currency risk on the borrower, the bank is obliged to provide the latter with sufficient and accurate information enabling him to understand the practical operation of the financial mechanism in question and thus assess the risk of the potentially significant negative financial consequences of such a clause for his obligations throughout the duration of this same contract, in particular in the event of a significant depreciation of the currency that is legal tender in the State where the latter is domiciled and an increase in the foreign interest rate (emphasis added). We find, not surprisingly, a match between the control with abuse clauses and the duty to inform on this theme, as the reasons in these two different parts of the judgment overlap. This very thorough control required by the judges of the bottom often implies that the bank must be blamed for insufficient information about the risks of the contracts entered into to the detriment of the borrowers.

In the gap, the first civil chamber refuses to consider that the record sent before the signing of would be a decisive element to verify sufficient and accurate information for the understanding of the financial mechanism of the loan denominated in foreign currency. In order to reject any breach of the bank’s information duty, the decision should have been justified by finding factual elements justifying the issuance of this “sufficient and accurate” information. Otherwise, the breach would be consummated and the lender’s liability would then be sought.

Here is a nuanced jurisprudence that requires vigilance from all concerned practitioners. To the banking institutions first, to protect against written documentation for the issuance of this information “adequate and accurate” about the functioning of the financial mechanism for the loan denominated in foreign currency. It is then up to the lawyers to focus their reasoning on these specific points before the trial judges warrants substantial compensation. Finally to the judges, i the rationale for their decisions because the Court of Cassation, because of the Court of Justice of the European Union, keeps an eye on things. These scales of complexity therefore do not facilitate the task of legal professionals. But jurisprudence is in any case drawn up in an increasingly precise manner. Case to follow.

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