Possible nullity of multi-currency clause in a mortgage loan
The recent Supreme Court Sentence dated 26 November 2018, deals with the validity of the novation of a mortgage loan in which the parties modified the agreed currency, replacing the euro with the Swiss franc and converting the outstanding capital to be amortized from euros to Swiss francs.
The analysis of the Supreme Court, inspired by important cases resolved by the CJEU such as the Andriciuc case or the Kásler and Káslerné Rábai cases and by the Supreme Court’s previous decisions, centers its analysis on the contractual good faith required of financial entities. Bank´s Good Faith or “bonus argentarius” doctrine by Spain´s Supreme Court (SSTS 15/07/1988, 11/14/2005) explains that contractual good faith required from Banks is greater than the standard contractual good faith, by the nature of the contractual banking relationships – being close to the risk liability of the professional— for the events that the credit entities carry out within the scope of their activity and that will only cease in cases of proven negligence of the client.
The criteria that must be taken into account by the Supreme Court in order to appreciate the abusiveness of the multi-currency clause are the following:
- Moment of the conclusion of the contract
- Bank professional empathy: could the professional reasonably estimate that, by dealing fairly and equitably with the consumer, he would accept a clause of that type in an individual negotiation?
- Profile of clients: knowledge about foreign currency investments.
- True negotiation carried out: this requirement cannot be considered fulfilled due to the fact that the initiative to negotiate was started by the client.
- What does “understand the clause” mean? Not only the formal and grammatical understanding but the concrete scope, so that an average consumer, normally informed and reasonably attentive, can know the possibility of variation of the value of the foreign currency and assess the economic consequences.
The above criteria are transferable to any negotiation in which these “professional empathy” efforts are required by the bank, as part of the Bank´s Good Faith due to the imbalance of expertise and knowledge between the entity and the client.