New judicial practice favors the issuance of interim injunctions in proceedings concerning the nullity of loans in Swiss francs (CHF)

The Higher Court in Ljubljana, in case reference no. II Cp 138/2024 dated 27th February 2024 (the "Judgment"), has taken a stance regarding the conditions for issuing a temporary (regulatory) injunction in the case of a lawsuit to establish the nullity of a loan agreement in Swiss francs (CHF), namely in connection with a moratorium on loan installment payments.

The condensed conditions for issuing a regulatory interim injunction in the specific case are as follows:

1. the creditor sufficiently demonstrates indications of unfairness in the contractual terms of the loan agreement in Swiss francs (CHF);

2. the creditor demonstrates either (i) a worsening of their financial position and thus the occurrence of difficult-to-remedy damage they would suffer if they continued paying loan installments, or (ii) that the debtor (i.e., the bank) would not suffer more severe adverse consequences from the issuance of the interim injunction than the creditor would have suffered without the interim measure, if it were to prove unfounded in the course of the proceedings.

3. reversibility, meaning that in the event of rejection of the debtor's (i.e., the bank's) lawsuit, it is possible to restore the previous state.

We invite you to continue reading for a detailed analysis of the content of the Judgment.

The subject of decision in this particular case was a ruling on the issuance of an interim injunction, by which the court temporarily suspended the effects of two loan agreements until the final resolution of the dispute (a so-called moratorium on repayment of loan installments). Although the appellate court granted the bank's appeal, annulled the contested part of the order, and referred the case to the court of first instance for reconsideration due to insufficient and incomplete assessment. However, regardless of the aforementioned, the appellate court, as will be explained further, upheld the reasons for issuing the interim injunction in the specific case.

For a comprehensive understanding of the Judgment, it is necessary to first clarify the conditions that must be met for the issuance of the interim injunction under consideration. In accordance with the provisions of Article 272 of the Enforcement and Security Act (the "ZIZ"), the court may issue an interim injunction to secure a non-monetary claim if the creditor demonstrates that it is likely that the claim exists or will arise against the debtor. In doing so, the creditor must also demonstrate one of the assumptions of the second paragraph of Article 272 of the ZIZ, namely (a) the danger that the enforcement of the claim will be impossible or significantly hindered, (b) that the injunction is necessary to prevent the use of force or the occurrence of irreparable harm; (c) that the debtor, if the interim injunction were to prove unfounded during the proceedings, would not suffer more severe adverse consequences than those that would occur to the creditor without the issuance of the interim injunction. The creditor is not obliged to prove danger if it is likely that the debtor would suffer only minor damage with the proposed injunction. On the other hand, according to the case law of the Constitutional Court, an additional condition of reversibility must also be demonstrated in the case of a regulatory interim injunction, i.e., the condition that in the event of rejection of the claim, it is possible to restore the previous state for the debtor.

In the discussed Judgment, the Higher Court in Ljubljana, among other things, specifically addressed the condition of the likelihood of the existence of the claimed claim and other conditions under the second paragraph of Article 272 of the Enforcement and Security Act (ZIZ) in connection with Article 7 of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (the "Directive") and the judgment of the European Court of Justice, case no. C-287/22 of 15 June 2023 (the "Judgment C-287/22"). The Higher Court in Ljubljana, through the discussed Judgment, affirmed the position of the court of first instance that the relevant legal basis for the issuance of interim measures in proceedings concerning unfair consumer contracts is the Directive, where it is also necessary to consider Judgment C-287/22 as a mandatory legal source for the interpretation of the said directive regarding the issuance of interim injunctions. In accordance with Judgment C-287/22, national courts must have sufficient indicators of the unfairness of contractual terms (i.e., the likelihood that the loan agreement is null and void) when issuing interim injunctions. On the other hand, national courts must also determine whether the moratorium in favor of the consumer for the duration of the proceedings is necessary to restore the actual and legal position in which the consumer would be if not bound by the (unfair) currency clause. In doing so, the court must also consider the financial position of the consumer and the risk that the consumer may have to repay an amount to the bank exceeding the principal amount of the loan.

As essential for the probable existence of the claim, i.e., whether the disputed loan agreements are void, the court in the Judgment emphasized the determination of whether the bank adequately explained to the borrowers the long-term economic burden they assumed by entering into the contracts. Inadequate and insufficient explanatory obligations on the one hand indicate the bank's bad faith, and on the other hand, they indicate such an informational gap between the contracting parties that borrowers, due to insufficient information at the time of contract formation, did not have the opportunity to make informed and reasonable decisions, even though the burden of their decisions may have only become apparent in the period (of several years) after the conclusion of the contracts. The content of the explanatory obligation must be such that an average consumer can understand the specific operation of the contractual term (i.e., the currency clause) and can assess, based on the information received, the potential economic consequences of such a term for their financial obligations and the real extent of the risk assumed.

In Judgement the Higher Court in Ljubljana emphasized that Judgment C-287/22 does not constitute an automatic direct basis for the issuance of an interim injunction. Therefore, it is always necessary to assess the specific factual situation in each case in light of the relevant provisions of the Enforcement and Security Act (ZIZ), always considering the positions taken in Judgment C-287/22. Additionally, in the discussed Judgment the court highlighted that the temporary regulation under consideration, which proposes a moratorium on loan installment payments, constitutes a regulatory interim injunction, thereby necessitating a restrictive approach to the fulfillment of the conditions for the issuance of such an injunction.

Regarding the weighing of conditions from the second paragraph of Article 272 of the Enforcement and Security Act (ZIZ), the Higher Court in Ljubljana highlighted that borrowers can demonstrate a deterioration in their financial situation and thus the occurrence of irreparable harm they would suffer if they continued to repay loan installments (the second clause of the second paragraph of Article 272 of the ZIZ). However, in any case, the court is also obliged to conduct a balancing act according to the third clause of the second paragraph of Article 272 of the ZIZ regarding the harmful consequences on both sides, taking into account not only the financial situation of the borrowers, the monthly burden of repaying loan installments, and the fact that the principal has already been repaid but also the fact that the bank is a financial institution with its claims secured by mortgages on the loan agreements.

In relation to the condition of reversibility, the Higher Court concluded that such condition is fulfilled in the case where the bank has established a mortgage as security for the loan. In this situation, it is not possible to argue that the bank would be unable to recover its claims in the event that the borrowers were unsuccessful in their lawsuit. The established mortgage enables the bank to restore the previous state in the event of rejection of the lawsuit by the borrowers.

If you have any additional questions regarding the process of issuing interim injunctions or the moratorium on loan repayments, we kindly invite you to email Law firm Križanec & Partners in Slovenia at info@krizanecpartners.com. We'll be happy to assist you further.