Mixing business and consumer?

Mixing business and consumer?

In a recent case, Horatiu Ovidiu Costea v SC Volksbank Romania SA C-110/14, referred to the ECJ by the Romanian courts, the ECJ considered the extent to which a lawyer was acting in his capacity as a professional or as a consumer in entering into a loan agreement, for the purposes of the Unfair Terms in Consumer Contracts Directive (the “Directive”).

In 2008 Mr Costea, a commercial solicitor, entered into a credit agreement with Volksbank Romania in relation to personal borrowings not linked to his role as a solicitor;

  • The loan was secured by way of a mortgage over Mr Costea’s law firm;
  • The loan was executed by Mr Costea in both his personal capacity as a borrower and as a representative of his firm by way of a guarantor;
  • The loan document did not state the purpose of the loan but was taken out under Mr Costea’s name not the firms;
  • Mr Costea later claimed that a term within the contract was unfair as he was acting as a consumer in relation to the agreement and should be protected by the Directive.

The ECJ decided that Mr Costea could be regarded as a “consumer” under the loan agreement as despite having a higher level of knowledge, as a commercial solicitor, this did not preclude him from the protection of the Directive. The ECJ held that in a mixed agreement objective factors must be considered when determining whether a person is a “consumer” or a person acting in a professional capacity and the predominant purpose of the agreement must be determined accordingly. As the agreement was entered into by Mr Costea in a personal capacity and for personal finances it was not material to the decision that the ancillary mortgage document was signed by Mr Costea as a representative of his law firm and involved property linked to his profession, the law firm’s building.

The ECJ emphasized that the purpose of the Directive is to protect consumers as they are in a weaker bargaining position when entering into a business contract as their level of knowledge is presumed to be less. It was held that bargaining strength should be considered contextually and an individual’s profession would not definitively remove their protection under the Directive as a “consumer”.

As a result of this decision businesses should attempt to minimise their risk by using clear contractual drafting to expressly confirm that the other party is acting in professional capacity or as a representative of a business. However, clear drafting can only provide limited protection as the Directive can apply regardless of any specific language if on objective qualification the other party can be deemed under the Directive to be a “consumer”.

This decision also indicates that professional technical knowledge, such as that of a solicitor, will not necessarily negate their status as a “consumer” under the Directive and the context in relation to position and strength of both parties must always be considered.

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