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Reopening floor clause mortgage claims in Spain

A recent Spanish Supreme Court ruling has made it less likely that consumers will be able to re-litigate floor clause mortgage claims on the back of a 2016 ECJ ruling that declared Spanish case law to be incompatible with EU law. There is still a question mark over whether consumers who settled their claims will be able to set aside the settlement and seek further compensation from lenders.

Prior to the economic crisis, the interest rates in many Spanish mortgage loans were based on a financial index, mainly EURIBOR, plus a margin. When EURIBOR was between 3% and 5.5%, most mortgages only had a small margin (ie 0.18% to 1%) so the banks introduced floor rate clauses which provided that, irrespective of the evolution of EURIBOR, there was a minimum interest rate to be applied for the calculation of the amounts payable by mortgagors.

Between 2009 and 2013, EURIBOR dropped to levels between 0.5% and 2%. Many floor clauses became effective, so a minimum interest rate (usually between 2% and 3%) applied. Many mortgagors challenged the legality of these clauses. On 9 May 2013, the Supreme Court rendered judgment on this issue for the first time and held that the relevant floor clauses were unfair and therefore invalid because consumers had not been fully informed about the economic and legal burden that the contract would place upon them.

Spanish Supreme Court limits recovery

The Supreme Court ruled, however, that the plaintiff could only claim for amounts overpaid, under a floor clause, after 9 May 2013, ie only overpayments made after the date of the Supreme Court judgment. This limitation was applied in several subsequent cases in Spain.

ECJ rules that Spanish case law breached EU law

However, the European Court of Justice ruled on 21 December 2016 (the ECJ Ruling), that Spanish case law restricting recovery only to the amounts overpaid after the date of the Supreme Court decision holding that floor clauses are unfair and therefore invalid, (that is, after 9 May 2013), was incompatible with EU law.

The ECJ Ruling gives rise to issues both for those claimants who had already litigated their floor clause claims, and for those who had entered into settlements, including:

  • consumers with a definitive Spanish judgment in their favour but who had only been able to recover for overpayments made after 9 May 2013; and
  • consumers who had entered into settlement agreements with banks under which they only agreed to the return of overpayments made after 9 May 2013 and expressly waiving any further claims.

Claimants with final judgments

A judgment on floor clauses (which applies the Supreme Court limits on recovery) has recently been challenged before the Supreme Court, on the basis that the ECJ Ruling should be deemed as a ‘new document’ that would enable the Supreme Court to set aside the judgment. The Supreme Court, on 4 April 2017 (the Supreme Court Ruling), ruled that it is not possible to quash a judgment based on the existence of new and contradictory case law on the subject matter. The Supreme Court states that the Spanish legal system preserves final judgments from changes in case law, favouring the principles of legal certainty and res judicata. As a consequence, it seems extremely unlikely that Spanish courts will overturn definitive judgments on floor clauses cases.

Claimants who settled

What about those consumers who entered into extrajudicial settlement agreements with the banks, under which they received interest on their overpayments from 9 May 2013 onwards and waived actions against the bank? It remains possible that those consumers may launch individual claims against the banks, requesting a Spanish court: (i) to declare the settlement agreements null and void (probably on the grounds of misrepresentation); and (ii) order the return of additional amounts to which they may be entitled by virtue of the ECJ Ruling.

There is thus still a risk for lenders who sold mortgages with floor clauses and also for those involved with the securitisation or assignment of such loans.

Further information

This case summary is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication.  For more information please contact Karen Birch – karen.birch@allenovery.com, or tel +44 20 3088 3710.

Legal and Regulatory Risk Note
Europe