Taking counsel: Lithuania's Supreme Court establishes new feature in consumer contracts

  • 2007-06-20
  • Egle Zemlyte [Jurevicius, Balciunas & Bartkus]

Article 1.39 of Lithuania's Civil Code provides that a consumer contract shall mean a contract involving the purchase of goods or services concluded between a natural person (consumer) and a person who sells such goods or services (supplier) for purposes not related with the consumer's commercial or professional activities 's i.e. for the satisfaction of the consumer's personal, family or household needs.

Following such a regulation, two features of the contract can be highlighted as qualifying the contract as a consumer contract: (i) the parties to the contract (natural person [consumer] and person who acts for purposes relating to his trade, business or profession); (ii) the purpose of the contract (the goods and services are purchased for a purpose not related with the consumer's commercial or professional activities). However, after April 6, 2007 an additional feature of the consumer contract was added by Lithuania's Supreme Court.

The decision of the Supreme Court was passed in a case regarding the annulment of an arbitration award. A natural person concluded a preliminary agreement with a bank regarding the future sale-purchase of a house. The person paid the entire sum for the house (300,000 litas) to the bank and was permitted to live in it.
As the bank was avoiding entering into the principal house sale-purchase agreement, the buyer filed a claim for the recognition of the preliminary agreement as a principal agreement. As the arbitration clause was established in the preliminary agreement the person lodged the action to the arbitration court. After the disadvantageous arbitration award, this person lodged the request for annulment of the arbitration award to the Court of Appeal, stating that the dispute was illegally decided in the arbitration court as it arose form the consumer contract. (According to the Law on Commercial Arbitration, disputes arising from consumer contracts cannot be decided in arbitration courts.)

The Court of Appeals dismissed the request regarding the annulment of the arbitration award and therefore a cassation appeal was lodged to the Supreme Court.
The Supreme Court agreed with the cassator that the Court of Appeals had to ex officio decide whether the dispute was capable of settlement by arbitration under Lithuanian laws 's i.e. whether the dispute had arisen from the consumer contract but also emphasized that the preliminary sale-purchase agreements concluded between the cassator (natural person) and the bank shall not be qualified as a consumer contract as the subject matter of the agreement was immovable property.

The Supreme Court stated that the subject matter of the agreement shall also be considered as a qualifying feature of the consumer contract as Article 6.350 explicitly establishes that the subject matter of the consumer agreement shall only be movable property. The Supreme Court also motivated this conclusion by the provisions of EU Directive 85/577/EEC to protect the consumer in respect of contracts negotiated away from business premises as the abovementioned directive establishes that the rules provided in the directive apply only to the cases where subject matter of the agreement is movable property.
It is of course indisputable that the provisions of the Civil Code regulating consumer contracts apply only in cases when the subject matter of the agreement is movable property. But the main question is whether the rules establishing unfair conditions of consumer contracts applies only for agreements where subject matter is movable property.

Unfortunately, despite the fact that EU Directive 93/13/EEC on unfair terms in consumer contracts does not provide for such exceptions (the EU directive on unfair terms in consumer contracts does not provide that it is not applicable in cases where the subject matter of the consumer contract is immovable property), the Supreme Court answered this question affirmatively.
In other words, the court withdrew the right of the consumer who buys from a professional the immovable property for purposes not related to the consumer's commercial or professional activities to enjoy the additional protection related with the unfair conditions in the consumer contract (Article 6.188). The future will show whether the Supreme Court's ruling will be followed by future court practice. We hope that it will not. o

Egle Zemlyte is an associate advocate at Jurevicius, Balciunas & Bartkus, a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms including Teder Glikman & Partnerid in Estonia and Kronbergs & Cukste in Latvia, dedicated to providing a quality "one-stop shop" approach to clients' needs in the Baltics.