February 2023

Decision of the Athens Court of Appeal on the Recognition of the Invalidity of Interest Rate Clauses in Loan Agreements

The Athens Court of Appeal issued decision No. 675/2023, which dismissed the appeal of a credit institution in special liquidation against a decision of the Athens Court of First Instance, which partially upheld a claim by a borrower seeking recognition of the unfairness of contractual terms contained in credit agreements drawn up for the purpose of servicing its business activity. The Court of Appeal upheld the judgment of the first instance court that the contractual terms concerning the determination of the interest rate, the calculation of interest on the basis of the 360-day year and the rollover of the contribution of the Law on the taxation of creditors were invalid due to lack of transparency. 128/75.

In particular, with regard to the abuse of the contractual clause fixing the interest rate, the said decision held that the clause providing that 'the loan is charged, as of the signing of this agreement, with an interest rate equal to that of the Greek Treasury Bonds (E.G.E.D.) with a 12-month maturity of the last issue preceding the beginning of each period of the loan, increased by 40 % plus the contribution of Law No. 128/75, as applicable, rounded to the nearest quarter of a unit' is invalid on the grounds of abuse (lack of transparency) in the absence of an objective criterion - an indicator of the change in the contractual variable interest rate. In the critical considerations of that judgment: "The above clause omits the reference to an objective criterion - an indicator of the change in the interest rate, which would reflect the conditions of the financial market and would express in the most valid manner the will of the parties to link the variation of the contractual interest rate to the changes in the cost of money on the market, such as the change in the European Central Bank's (ECB) Main Intervention Rate for its main refinancing operations, which is the rate at which the ECB lends to credit institutions and is usually taken into account as an objective criterion in the contracts concerned. The above omission of an objective criterion - an indicator of the variation of the contractual variable interest rate - deviates substantially from the consumer's legitimate expectations, since, without good reason, it leaves the consideration paid by the plaintiff indefinite and does not allow it to be determined on the basis of criteria specifically laid down in the contract and reasonable for the consumer. That omission renders the above GTC invalid on the ground that it is abusive because of its vagueness (lack of transparency), since the plaintiff consumer is not in a position to know in advance the element of the amount and conditions of the change in the interest rate which is decisive for the contractual relationship of provision and consideration in question'. 

Subsequently, when examining the interest rate clause of the second credit agreement, which was brought to its attention, the Athens Court of Appeal focused on its opacity, as a consequence of the passing on of the contribution of Law No. 128/75 in a vague manner. In particular, according to the relevant considerations of the judgment, the clause providing that 'The repayment period of the above loan together with the interest on the principal is agreed to be fifteen (15) years from 1-1-2001 at the interest rate of the interest rate of the arrangements of ... SA that from 1-1-2001 to 30.9.2001 9% including the contribution of Law 128/75. From 1-10-2001 to ... 8.5% plus the contribution of Law 128/75, which amounts to ...', is invalid on the grounds of unfairness, on the following grounds: '... in fixing the contractual interest rate from 1.1.2001 to 30.9.2001 at 9% (including the contribution of Law No 128/75) and from 1.10.2001 at 8.5% (plus the contribution of Law No 128/75), a specific reference is made to charging the plaintiff borrower the contribution of Law No 128/75. 128/1975, which (charging) is in principle not prohibited. However, in the present case, the imposition of that special charge, as part of the interest rate, is not specified by percentage or in any other way, with the result that the requirements of transparency and information as to its amount are not satisfied, as part of the contractual interest rate and, necessarily, as part of the applicant's contractual consideration (having regard also to Article 82 of Regulation No 2501/2002, paragraphs 16 and 12-14), rendering, for that reason, the abovementioned GGE invalid on the ground of abuse. At the same time, the acceptance, in this case, of the invalid GTC by the plaintiff-creditor by including it in the contracts at issue does not render it valid, because the rules for the control of unfairness ... are rules of mandatory law, the application of which cannot be contractually waived'. In this particular case, the Court of Appeal held that "the gap created by partial invalidity ... cannot be filled in this case by supplementary interpretation'. 

Finally, it should be noted that the aforementioned appellate decision reiterated the view that, in the case of a banking institution in special liquidation, the provision of Article 25 of the previous Bankruptcy Code on the suspension of individual pursuit measures from the declaration of bankruptcy does not apply (additionally) in the case where the plaintiff is a debtor and not a creditor of the institution in special liquidation. The judgment further clarified that, in any event, in the present case, 'the declaratory relief sought in the action, which specifically concerns the recognition of the invalidity of terms (GOS) of the contracts at issue, does not fall within the scope of the suspension of individual prosecutions against the defendant in special liquidation', since the concept of individual proceedings 'includes both actions for annulment and actions for declaration of invalidity for the purpose of obtaining satisfaction of a pecuniary claim, whereas actions seeking to obtain a declaration that a contract is invalid do not'.

This decision accepts two basic rules: a) firstly, that a credit institution cannot set interest rate conditions at will without reference to known interest rate indices and objective criteria and b) secondly, that even if these conditions have been accepted by the borrower, it is not possible to remedy their invalidity as they are provisions of "mandatory" law.

(for more see here)