Croatian Law Providing For Retroactive Invalidity Of Credit Agreements In Croatia With An Unauthorized Foreign Lender Incompatible With EU Law

Author:Ms Jasna Zwitter-Tehovnik
Profession:DLA Piper

In a recent judgment1, the Court of Justice of the European Union (CJEU) ruled that national law may not, by means of a retroactive, general and automatic rule, invalidate credit agreements concluded with foreign lenders unauthorized to provide credit services in that Member State.

Facts of the Case

The underlying facts were not particularly complex - in 2007, the claimant - Ms Milivojević, a Croatian citizen, obtained a loan from an Austrian based bank, but via an intermediary resident agent, for the purpose of renovating her house and, particularly, creating apartments for rent. The loan agreement provided for an alternative jurisdiction clause in favour of either the Austrian or the Croatian courts. In addition, a mortgage was registered on the Claimant's property which was subject to Croatian law and executed in the form of a notarial deed. In 2015, Ms Milivojević initiated a claim at the referring Municipal Court of Rijeka (Općinski sud u Rijeci) against the Austrian banking entity for a declaration of invalidity of the aforementioned contractual arrangements and the removal of the mortgage from the land register.

Legal issues referred to the CJEU

The issues referred by the aforesaid municipal court to the CJEU relate, in essence, to the legal consequences on lending arrangements concluded between foreign credit institutions, not holding the authorization required to provide such services in the Republic of Croatia, and Croatian borrowers as well as certain aspects of international jurisdiction.

Indeed, subsequent to an amendment of the Croatian Consumer Credit Act in September 2015, article 19j of the aforesaid act provided for a nullity of a consumer loan agreement to the extent the creditor or the credit intermediary did not hold the required authorisation. In addition, according to the Croatian Act on the invalidity of credit agreements featuring international elements which entered into force in 2017, “credit agreements featuring international elements” and concluded in the Republic of Croatia between debtors and non-authorised lenders shall be null and void. This was précised in the aforesaid law to apply with retroactive effect even to credit arrangements concluded before the entry into force of the aforesaid act.

The referring court had doubts concerning (1) restrictions on the freedom to provide services within the European Union (Article 56 TFEU) potentially arising from national law; (2) international jurisdiction, i.e...

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