In Case C-630/23 of 30 April 2025, the Court of Justice of the European Union (CJEU) ruled on the consequences of the removal of a term relating to exchange rate risk in a leasing agreement denominated in a foreign currency.
Facts of the case
In June 2007, ZH and KN concluded a leasing agreement denominated in Swiss francs (CHF) with AxFina for the purchase of a vehicle. The credit was to be repaid in 120 monthly instalments denominated in Hungarian forint (HUF). The term relating to the exchange risk placed the risk associated with the appreciation of the CHF against the HUF entirely on the consumers. In May 2013, AxFina dissolved the agreement with immediate effect due to the consumers being in arrears. The entire debt in HUF thus became due and payable in one payment. In compliance with Hungarian law (Paragraph 3(1) of the DH2 Law), AxFina deducted ‘the amount resulting from the settlement (…) as an overpayment attributable to an exchange rate difference (…) and the proceeds of sale of the vehicle’ (para 20). It then brought an action claiming that, should the term be found unfair and the agreement be found invalid, the contract should be declared retroactively valid from the date of the conclusion. The consumers should thus be ordered jointly and severally to pay the debt, in the amount of HUF 1 637 682, of which HUF 972 960 were owed in respect of the exchange rate risk.
The court of first instance found the agreement invalid due to the unfairness of the term in question, but found that the consumers had to bear the risk up to a certain extent. It reduced the amount owed on the basis of the contract – which it declared valid –by the amount the consumers had lost ‘as compared with the situation that would have obtained if that agreement had been denominated in Hungarian forint’ (para 22). The court of appeal upheld the judgment, stating that the harm, depending on the unfair term, could be eliminated and that restoration of the situation which the consumers would have been in had the agreement not included that term was not possible, due to the irreversible nature of the performance.
ZH and KN brought an action before the referring Supreme Court, Kúria, seeking a ruling dismissing AxFina’s original action. They argued that ruling out restoration was contrary to EU law and that the national court cannot alter the content of the unfair term.
The Supreme Court observes that under Hungarian law, the consequences of the invalidity of leasing agreements consist in either declaring it valid or declaring it effective until the decision of invalidity, thus excluding restoration of the original situation (para 27). It is thus possible that, where the contract is found invalid following the removal of an unfair term, a Hungarian court can declare the contract valid retroactively ‘in a such a way that the unfair term (…) does not confer any obligation on the consumer concerned, whereas the other terms (…) which are not unfair, continue to bind the parties’ (para 31). This way, the unfair term placing the risk entirely on the consumers would be removed, and the leasing would continue to exist (para 32).
Question referred
The Hungarian Supreme Court thus referred one relevant question.
It asked whether Article 6(1) of the Unfair Contract Terms Directive (UCTD) can be interpreted as meaning that the contract in question can continue to exist without the unfair term (which pertains to the main obligation), where the law of the Member State regulates the currency conversion mechanism by means of mandatory statutory provisions.
Further, it asked whether it is compatible with the UCTD a Member State’s legal practice, according to which, in view of the principle of unjust enrichment, the creditor must reimburse the consumer ‘the amounts charged by the creditor under the term declared unfair, but that order is not made in the context of a restitutio in integrum, because a special provision of national law excludes that possible legal consequence of invalidity’ (para 37). Instead, the order is made to restore ‘the balance of the contract between the contracting parties (…) by applying the main legal consequence’ in case of invalidity, of the law of the Member State, namely ‘a declaration of validity in respect of the contract, such that the unfair terms do not impose any obligation on the consumer, but the remaining (fair) elements of the contract (including the contractual interests and other costs) continue to bind the parties on the same terms’ (para 37).
Alternatively, it asked whether it is compatible with the UCTD a practice according to which, where a declaration of validity is not possible, ‘the legal consequences of invalidity are determined by declaring the contract applicable until judgment’ and ‘the settlement of accounts (…) is carried out by applying the principle of unjust enrichment’ (para 37)
The CJEU first ruled that a term held to be unfair must, in principle, be regarded as never having existed, so that it will be ineffective towards the consumers. Thus ‘the determination by a court that such a term is unfair must (…) have the consequence of restoring the consumer to the legal and factual situation that he or she would have been in if that term had not existed’ (para 45). A ‘corresponding restitutory effect’ ought to follow the unfairness of a term, the dissuasive effect of Article 6(1) otherwise being called into question (para 46). By implication, while national laws must define the legal effects of finding a contractual term unfair, ‘such a finding must allow the restoration of the legal and factual situation that the consumer would have been in if that unfair term had not existed, by, inter alia, creating a right to restitution of advantages wrongly obtained (…) by the seller or supplier’ (para 48).
Can the contract continue to exist?
The referring court assumes that the application of Hungarian law meets the requirements of the UCTD in that, from such application, it follows that the consumers no longer bear the financial consequences of the unfair terms, while continuing ‘to enjoy the favourable interest rate linked to the foreign currency stipulated in that contract’ (para 50). However, the CJEU observes that there exist limits to the discretionary power of the Member States to establish the criteria governing the possibility of a contract to continue existing without its unfair terms (para 55). To conclude that a contract is ‘capable of continuing in existence without the unfair terms’, as established by Article 6(1), it is necessary to establish that the continued existence ‘does not involve any amendment of the contract other than that resulting from the deletion of those terms’ (para 62). Where, like in the case at hand, the referring court has found that the unfair term defines the main subject matter of the contract, it does not seem legally possible for the contract to continue in existence (para 63, see Dunai, C‑118/17, para 52). A national court cannot remedy the invalidity of the contract resulting from the unfairness of a term by declaring, at once, the validity of the contract and changing its currency (para 64, see AxFina Hungary, C‑705/21, para 41). This would de facto alter the content of the term.
Further, while the Court has ruled that Article 6(1) does not preclude a national court from replacing a term with a provision of national law where the consumer would be otherwise disfavoured by the annulment of the contract in its entirety (see Abanca Corporación Bancaria and Bankia, C-70/17 and C-179/17), it is important to remember that the wishes of the consumer are decisive in assessing the consequences of the annulment of the contract (see D.B.P. and Others (Mortgage loans denominated in foreign currency), C-80/21 to C-82/21). In the case at hand, the consumers have clearly expressed their wish that the leasing be annulled in its entirety (para 70).
Does the Hungarian legal practice have a deterrent effect?
The compatibility with EU law of the Hungarian legal practice detailed above depends on two things: first, it should make it possible to restore both in law and fact the situation which the consumer would have been in had the contract not existed; second, it should not undermine the deterrent effect of the UCTD (para 76; see Bank M.). In cases like the one at stake, the consumer must at least be entitled to reimbursement of the monthly instalments and fees paid (para 77). A payment only of the sums obtained by AxFina on the basis of the term relating to the exchange rate risk is not at all sufficient (para 78). They must be reimbursed for all monthly instalments. Further, granting AxFina the right to seek compensation beyond restitution of the goods made available in performance of the agreement (i.e., the vehicle) or the reimbursement of the corresponding value would eliminate the deterrent effect of the UCTD, de facto allowing the credit institution to be remunerated for the use of those goods by the consumers (para 79; see Bank M). Further, contrary to what the Hungarian Supreme Court argued, this interpretation is not questioned by the need to ensure that ‘the penalty imposed is …proportionate’. In Deutsche Bank Polska, C-325/23, the Court, in fact, ruled that invalidating a contract due to the unfairness of a term is not at all a penalty (para 80).
Conclusion
With this ruling, the Court of Justice intervenes, consolidating Bank M, and thus adding an extra piece to a complex process of clarification on the compatibility of legal consequences of finding a contractual term unfair with EU law. As recently noted by the scholarship, national courts reach significantly differing outcomes with regard to the consequences of the unfairness of a contract term (E Mišćenić, P Tereszkiewicz and M Infantino, ‘The Interplay Between the CJEU and National Courts in the Case Law on Unfair Contract Terms in Foreign Currency Loans: A Comparative Overview’ (2023) 19(4) European Review of Contract Law 346). While Member States are in charge of determining what the consequences of the invalidity of the whole contract are, the Court can and is providing guidance on the alignment of national rules with the objectives of the Unfair Contract Terms Directive.