Constitutional Court stands up for consumers with decisions on the application of arbitration clauses

The Constitutional Court recently issued two major judgments dealing with consumer credits and arbitration clauses in credit contracts. Both decisions confirmed the recent trend of the entire justice system consistently making an effort to balance out the unequal position of consumers.

For many years, case law regarding the possibility and conditions of using arbitration clauses in consumer contracts was inconsistent and often contradictory. A change only came with the unifying decision of the Supreme Court’s Grand Panel of judges in the civil and commercial divisions: it deduced that an arbitration clause not determining the arbitrator or at least the manner of its determination was invalid.

The subsequent Supreme Court case law then indicated that an invalid arbitration clause renders the continuation of any arbitration procedure impossible. The arbitration procedure has to be suspended, and any award issued in such arbitration procedure will be considered null. If, based on such award, an execution procedure has been initiated and is pending, it has to be stopped.

Recently, the Constitutional Court closed some years-long disputes regarding the application of arbitration clauses. Both cases involved a situation where debtors drew funds from non-banking entities under a credit contract. The contracts contained an arbitration clause that had been concluded contrary to the above described SC case law.

The credit companies then withdrew from the contracts on the grounds that the debtors had not been repaying the credits, and initiated arbitration procedures to recover their debts. In both cases, the arbitration actions were filed several months after the above described SC’s unifying ruling was issued.

The Constitutional Court had to decide on the debtors’ argument that due to the invalidity of the arbitration clause, the limitation period had never stopped running, as would otherwise be the case – under the general rule, if debts are being recovered in court or in arbitration, the limitation period does not run and the debt cannot become statute-barred as long as the decision on the matter is pending.

The Constitutional Court took a rather untraditional stance, accepting the debtors’ arguments and confirming that the debts have indeed been statute-barred.  The court held that the arbitration clause had been abused in a situation when the credit company must have been aware that the clause was invalid.

This is yet another consumer dispute where the Constitutional Court sided with consumers as the weaker party. The question though now arises whether things have not already gone too far: in the future, this may result not in the proclaimed equality of arms – but in businesses becoming the weaker party.


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