Mostaza Claro v Centro Móvil Milenium (Case C-168/05) [2006...

Facts

• Ms. Mostaza Claro entered into a contract with Centro Móvil Milenium that included an arbitration clause designating a specific arbitration body.
• The contract's arbitration clause effectively excluded judicial review of the contract’s terms in the national courts.
• Ms. Mostaza Claro challenged the enforcement of an arbitration award based on the clause, alleging it prevented her from contesting unfair terms.
• Spanish law was applicable to the case, and the national court referred questions regarding the compatibility of such arbitration clauses with EU consumer protection law to the European Court of Justice (ECJ).
• The case centered on the application of Directive 93/13/EEC on unfair terms in consumer contracts.

Issues

1. Whether national courts may refuse to enforce an arbitration award based on an arbitration clause that prevents effective judicial review of contractual terms, in light of Directive 93/13/EEC.
2. Whether a contractual arbitration clause that excludes judicial review results in a significant imbalance to the detriment of consumers, rendering it unfair under the Directive.
3. The extent to which consumer protection legislation takes precedence over contractual freedom where arbitration agreements are concerned.

Decision

• The ECJ held that the primacy of Directive 93/13/EEC requires national courts to ensure the full effectiveness of its provisions, even in the presence of valid arbitration clauses under national law.
• Arbitration clauses that preclude effective judicial review of potentially unfair terms cannot be enforced if they hinder consumers' ability to exercise their rights under the Directive.
• Where such clauses create a significant imbalance between the consumer and trader, they are to be regarded as unfair, and national courts must refuse to enforce them.
• The ECJ clarified that consumer protection as mandated by Directive 93/13/EEC overrides contractual agreements that undermine access to judicial remedies for consumers.
• National courts have an obligation to assess the impact of arbitration clauses on consumers’ rights and, where necessary, allow consumers to pursue claims despite an arbitration award.

Legal Principles

• Directive 93/13/EEC on unfair terms in consumer contracts takes precedence over contractual freedom where the effectiveness of consumer protection is at stake.
• Arbitration clauses are subject to the fairness test set out in Directive 93/13/EEC; their enforceability depends on whether they create an imbalance hindering consumer rights.
• National courts must actively examine whether arbitration clauses impede consumers’ ability to challenge unfair terms, irrespective of national legal rules upholding such clauses.
• Excluding judicial review through arbitration can render an arbitration clause unfair if it restricts access to legal remedies provided by the Directive.

Conclusion

The Mostaza Claro judgment established that national courts must refuse to enforce arbitration clauses in consumer contracts when those clauses prevent effective judicial review of unfair terms, reaffirming the primacy of Directive 93/13/EEC over contractual arrangements that impede consumer rights.