• In the case of Case c 168 05 Mostaza v Centro Movil Millenium 2006 ECR I 10421, the principle of res judicata was precluded by the principle of effectiveness in relation to arbitral awards that are incompatible with EU laws.

Facts of the Case

  • C concluded a mobile phone contract with the defendant supplier who had contained an arbitration clause.
  • C failed to comply with the minimum subscription period under the contract and D commenced arbitration proceedings as a result.
  • The tribunal was found against C.
  • C then contested that the decision before the provincial Court, where she contended that the arbitration agreement was unfair and that it should therefore be declared null and void.
  • The ECJ was required to tule whether the Directive required the referring court to determine whether the arbitration agreement was void and to annul the award if it found that that arbitration agreement contained an unfair term when the issue had not been raised by the consumer in the arbitration proceedings.

Issues in Case c 168 05 Mostaza v Centro Movil Millenium 2006 ECR I 10421

  • Was the clause unfair under Article 6 Council Directive 93/13

Held by European Court of Justice

  • The res judicata rule is precluded from application by the principle of effectiveness

Judge Jann (President)

  • Held that the directive was intended to protect consumers who were in a weaker position than the seller or supplier, as regards bargaining power and level of knowledge and such an imbalance could only be corrected by positive action that was not connected with the parties to the contract.
  • The protection conferred by the Directive included cases where, as here, the consumer had not raised the unfair nature of the term.
  • “As the aim of the Directive is to strengthen consumer protection, it constitutes, according to article 3(1)(t) EC, a measure which is essential to the accomplishment of the tasks entrusted to the Community and, in particular, to raising the standard of living and the quality of life in its territory (see, by analogy, concerning article 81 EC, Eco Swiss, para 36).  The nature and importance of the public interest underlying the protection which the Directive confers on consumers justify, moreover, the national court being required to assess of its own motion whether a C contractual term is unfair, compensating in that way for the imbalance which exists between the consumer and the seller or supplier.  Having regard to the foregoing, the answer to the question referred must be that the Directive must be interpreted as meaning that a national court seized of an action for annulment of an arbitration award must determine whether the arbitration agreement is void and annul that award where that agreement contains an unfair term, even though the consumer has not pleaded that invalidity in the course of the arbitration proceedings, but only in that of the action for annulment.” Pg 76

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