Consumer law's iron grip: even settlement agreements are a target

Facts Background into American Express v. Consumer

This case involves a dispute between American Express Europe S.A. ("American Express") and a consumer. American Express entered into two agreements with the consumer, pursuant to which two American Express payment cards were provided to the consumer. The consumer fell into arrears in her contractual payment obligation to American Express. The consumer acknowledged this, following which American Express and the consumer entered into a settlement agreement. Under this settlement agreement, the consumer was required to pay a sum of money in instalments to American Express.  When the consumer failed to comply with this obligation, American Express initiated a summons procedure and claimed the consumer to fulfil the settlement agreement, plus interest and costs.

Legal proceedings

The subdistrict court declared the non-appearing consumer, to be in default of appearance and entered an interlocutory judgment ordering American Express to further substantiate its claim.

In the interlocutory judgment, the subdistrict court considered that the settlement agreement replaced the payment card agreements. The payment card agreement is a consumer credit agreement to which strict consumer protection provisions generally apply. The subdistrict court must assess ex officio whether these consumer protection provisions have been complied with, even if a consumer credit agreement has since been replaced by a settlement agreement by the parties. In the present case, however, the subdistrict court did not have sufficient information to test whether the consumer protection provisions had been complied with. In an interlocutory decision, the subdistrict court therefore ordered American Express to still provide the necessary information, stating that if the order was not (fully) complied with, the subdistrict court would draw the consequences it deemed just and appropriate.

American Express subsequently failed to comply with the order, and requested the subdistrict court to reconsider the judgment given in the interlocutory order and to base the judgment only on the settlement agreement. According to American Express, this entails the nature of the settlement agreement and the importance of consistent case law. In addition, American Express refers to the state of affairs regarding ex officio review of consumer credit, the circumstance that the Dutch legal system lacks a simple procedure for uncontested monetary claims, and to Article 24 of the Code of Civil Procedure, which stipulates that, in its investigation and decision, the court must, in principle, limit itself to what the parties have based their claim on (in this case, the settlement agreement).

The assessment

The subdistrict court considered that if a claim has its basis in a consumer credit agreement, the court should ex officio assess whether the professional party has fulfilled its information and care obligations when concluding that agreement, and whether the terms are not unfair to the consumer. This ex officio test should take place in default cases, in adversarial cases and also in cases, such as this one, where the consumer has acknowledged owing money to the lender. After all, the consumer protection system is based on the idea that the consumer is in a weak negotiating position against the professional party. The consumer will also generally have less information than the professional party, and there is a risk that the consumer, out of ignorance, will not invoke legal provisions that exist precisely to protect him. The court must therefore help the consumer.

This is without prejudice if, after the conclusion of a consumer credit agreement, it is replaced by a settlement agreement. Had it been otherwise, the court's ex officio review of the consumer credit agreement and thus the European consumer protection objective could easily be circumvented by a settlement agreement.

To refute the argument put forward by American Express, the subdistrict court also considered that it had not lost sight of the fact that the claim was based on the settlement agreement and that this basis must therefore also be assessed. In addition, according to established European case law, the court must also request information that is required for the ex officio assessment of compliance with consumer protection provisions when concluding the agreement preceding the settlement agreement.

The Subdistrict Court further considered that unity of law and legal certainty are of great importance, but that does not mean that the subdistrict court is automatically obliged to adopt the outcome of earlier similar proceedings. Moreover, advancing insight and recent case law mean that subdistrict courts have become increasingly strict in enforcing provisions that protect consumers. Also, the absence of a simple procedure for uncontested claims cannot lead to the conclusion that a necessary ex officio review by the subdistrict court can be omitted.

The subdistrict court did not follow American Express' arguments and considered that there was no reason to reconsider the judgment given in the interlocutory judgment. The subdistrict court found that American Express had not complied with the order, as a result of which ex officio review was not possible and it could not be assessed whether, and if so to what extent, the claim was allowable. American Express's claim is dismissed.

Implications for practice

While this ruling concerns a consumer credit agreement, it also applies to other consumer contracts (B2C). Such contracts are generally subject to strict European consumer protection provisions, the compliance with which the court must assess ex officio. If a consumer contract has been replaced by a settlement agreement by the parties, the court will have to assess ex officio whether both the settlement agreement and the contract preceding it comply with the consumer protection provisions.

A party to which the court gives an order to provide further information with the warning that, in case that party fails to comply with that order or does not comply fully with it, the court will attach to it the consequences that the court considers just and appropriate, should take that warning to heart. Failure to do so may just mean the loss of the procedure.

With thanks to Paralegal Rowan Hamer, co-author of this article.