I. The facts
The factual circumstances that gave rise to the judgment of 12 January 2023 rendered by the Fourth Chamber of the Court of Justice of the European Union are the following.
A Lithuanian lawyer represented a “consumer” [1], as defined in Lithuanian law and in Council Directive 93/13 on unfair terms in consumer contracts.
The Lithuanian law on the profession of lawyer reads:
“Clients shall pay the lawyer the fees agreed by contract for the legal services provided under the contract.”
The conditions of the Lithuanian “equitable moderation” are laid down as follows:
“When determining the amount of remuneration due to the lawyer for legal services, account must be taken of the complexity of the case, the lawyer’s qualifications and professional experience, the client’s financial situation, and other relevant circumstances.”
The “the term regarding cost” in the main proceedings states that the fees were fixed at EUR 100 “for each hour of consultation provided to the client or of provision of legal services.”
The lawyer provided all the legal services as described in the contract, but the client did not pay her fees, so the Lithuanian lawyer brought an action for recovery of his fees.
The judge at the first-instance proceedings held that the “terms regarding the price in all five contracts to be unfair” and reduced the fees sought by half.
The lawyer appealed against this decision but was unsuccessful. She then petitioned an appeal in cassation.
The Supreme Court of Lithuania, the referring court, requested the Court of Justice of the European Union for a preliminary ruling by giving its interpretation of Directive 93/13 on unfair terms in consumer contracts [2], firstly, regarding the requirement of transparency of terms that relate to the main subject-matter of contracts for the provision of legal services, and secondly, the effects of a finding that a term setting the price of those services is unfair.
II. The Court’s conclusion
The Court clarified first that “the term regarding cost relates to remuneration for legal services, which is based on an hourly rate” is the main subject-matter of the contract.
It then continued as follows [3]:
“Such a term, which determines the principal’s obligation to pay the lawyer’s fees and sets out the price of those fees, is among the terms which define the very essence of the contractual relationship, a relationship which is specifically characterized by the provision of legal services for remuneration.”
It therefore falls within the “main subject-matter of the contract” within the meaning of Article (4)(2) of Directive 93/13.
The Court also clarified that the interpretation applies irrespective of the fact that this essential term of the contractual relationship was negotiated individually or if no such negotiation took place (Editor’s note: namely whether the hourly fee was subject to taxation, i.e., whether the lawyer set the price unilaterally) [4].
In the second part of its reasoning, the Court answered the question whether the term regarding cost for the lawyer’s services, which was limited to only setting the hourly rate, meets the transparency requirement under Directive 93/13, i.e., the requirement of being drafted in “plain intelligible language,” without the clause including any further details or information other than the hourly rate charged.
The Court reaffirmed its case-law on the requirement of transparency of contractual terms and referred this analysis to the national court to “ascertain, considering the circumstances surrounding the conclusion of the contract, whether all the information likely to have a bearing on the extent of his or her commitment has been communicated to the consumer, enabling the consumer to estimate the financial consequences thereof.” [5]
Regarding the time when that information must be brought to the consumer’s attention, the Court held that communicating this information “before concluding such a contract” is “of fundamental importance” for a consumer [6].
Recital 40 should be read in full, which reads as follows:
“In the present case, it must be observed that, as the referring court states, the term regarding cost merely states that the fees to be received by the supplier amount to EUR 100 for each hour of legal services provided. In the absence of any other information provided by the supplier, such a mechanism for determining the price does not enable an average consumer, who is reasonably well informed and reasonably observant and circumspect, to estimate the financial consequences of that term, that is to say, the total amount to be paid for those services.” [7]
Admittedly, the Court does not go so far as to require a judicial assessment and does not banish the hourly rate from the contractual scope, for example, in favour of a fixed price or a range of fees, considering that:
“it is often difficult, if not impossible, for the supplier to predict, at the time the contract is concluded, the exact number of hours needed to provide such services and, consequently, the actual total cost of those hours.” [8]
The Court continues:
“However, although a seller or supplier cannot be required to inform the consumer of the final financial consequences of his or her commitment, which depend on future events which are unpredictable and beyond the control of that seller or supplier, the fact remains that the information which the seller or supplier is required to provide before the conclusion of the contract must enable the consumer to take a prudent decision in full knowledge of the possibility that such events may occur and of the consequences which they are likely to have with regard to the duration of the provision of legal services concerned.” [9]
Therefore, the Court does not require the supplier to predict the future, but it states that the information he gives to the consumer before the conclusion of the contract must “include particulars that enable the consumer to assess the approximate total cost of those services. Such particulars might be an estimate of the expected number or minimum number of hours needed to provide a certain service, or a commitment to send, at reasonable intervals, bills or periodic reports indicating the number of hours worked.” [10]
The question submitted by the Lithuanian referring court was also whether, in light of Directive 93/13, the term that sets the price of a lawyer’s services on the basis of an hourly rate, without any other information, must be considered unfair and thus void simply on the ground that it does not satisfy the requirement of transparency.
On this occasion, the Court reaffirmed its case-law according to which the assessment of the unfair nature of a term in a contract concluded with a consumer is based, in principle, on an overall assessment that does not merely take into account the possible lack of transparency of that term, thereby leaving it to the national legislature (here: the Lithuanian legislature) to adopt measures that grant a higher level of protection such that they stipulate that terms that fail to comply with the transparency requirement are to be considered unfair.
As Lithuanian law provides for a higher level of protection, the lack of transparency of a term is considered unfair.
Should a term be unfair, would a lawyer not be entitled to any remuneration for his services, or can the court replace the unfair term regarding the cost of the service with a national law provision granting the maximum fee for the lawyer’s assistance, or does the court have discretion to decide what it considers to be a reasonable level of remuneration for these services?
The Court concluded that Directive 93/13 “does not preclude the national court from removing, in accordance with the principles of contract law, the unfair term and replacing it with a supplementary provision of national law in cases where the invalidity of the unfair term would require the court to annul the contract in its entirety, thereby exposing the consumer to particularly unfavourable consequences, so that the consumer would thus be penalised.”
The Court reflected on its earlier case-law, in particular when annulling an unfair term in the case of a loan agreement, and referred to the difficult situation in which the consumer who was unable to repay the outstanding balance that had become due forthwith as a result of the contract’s annulment, saying that it was certainly a particularly unfavourable consequence.
Apart from the situation in which the invalidity of the term would expose the consumer to particularly unfavourable consequences, the strict application of Directive 93/13 leads to the lawyer’s inability to receive any remuneration for his services if the lack of transparency amounts to an unfair term under national law.
According to the Court, to replace the annulled term, one must consider supplementary law provisions of national law, but the national court may not supplement the contract by changing the contents of that term.
Moreover, the Court concluded:
“On the other hand, those provisions preclude the national court from replacing the unfair term that has been annulled with a judicial assessment of the level of remuneration due for those service or applicable by mutual agreement of the parties to that contract.”
III. The crash-test of the ethical rules relating to information about fees, costs, and disbursements that should be provided to the client
The Court gathered its recommendations and set them out in recital 44 of its decision.
As a reminder, the information provided by the lawyer “must include particulars that enable the consumer to assess the approximate total cost of those services. Such particulars might be an estimate of the expected number or minimum number of hours needed to provide a certain service, or a commitment to send, at reasonable intervals, bills or periodic reports indicating the number of hours worked.”
Although the Court recognizes the difficulty, if not the impossibility, of the judicial assessment, it places the timing of the information to be given to the consumer to be “before the conclusion of the contract,” thus positioning the possibility of intermediary status as an addition and not an alternative to the information given before concluding the contract.
It must be noted that the ethical information on fees, under the 2013 reform, suffers greatly as a result of the lessons learned from this 12 January 2023 judgment.
Article 5.19 of the Code of Ethics requires lawyers to provide their client with all necessary information on how and under what conditions their chosen method is applied. [11]
Article 5.20 of the Code of Ethics details this information, namely that the information that the lawyer provides to his client “is intended to enable the client to form as precisely as possible how the fees and costs will be calculated and claimed, as well as their periodic intervals. In particular, the lawyer draws the client’s attention to the factors that can influence the level of the fees. These elements can be, for example, the urgency, the complexity, the financial and moral importance of the case, the nature and extent of the work done, the result obtained, the reputation of the lawyer, the financial capacity of the client, the chances of recovering the sums being sought, or opposing party’s argumentation and case-file.”
Article 5.22 of the same Code highlights the need for provisional payments and for regular interim statements to be drawn up as the work progresses. This interim statement will have to be issued according to the fee calculation method.
More specifically, as regards the drawing up of interim or provisional statements of fees, Article 5.22, paragraph 3, specifies that
“These are drawn up periodically to keep the client informed of the costs relating to the lawyer’s provision of services and to enable him to spread the burden of fees, costs and disbursements over time.”
However, this rule embraces all methods of setting the fee without distinguishing any of them. If a lawyer sets his fee on an hourly basis, shouldn’t there be an addendum to the Conditions that would allow him to give an estimate of the foreseeable or minimum number of hours required to provide the service or at least a foreseeable budget, which is common practice in calls for tenders?
IV. Application of this judgment to the Belgian judicial system and/or the Belgian bar association
This CJEU judgment is strongly influenced by Lithuanian law, which has a higher level of protection in that it finds a term to be unfair if it does not meet the transparency requirement.
The section on unfair terms in Book VI of the Code of Economic Law does not mention the transparency requirement, but Article VI.37 of this Code [12], i.e., in one of its general provisions under Title 3 – Consumer Contracts, reads:
“If all or some of the terms of a contract between a business and a consumer are in writing, they must be drafted in a plain and intelligible manner.”
The provisions on unfair terms referred to in Articles VI.82 through VI.87, in accordance with Directive 93/13, do not apply the same way to an unfair term and lack of transparency. They are merely restricted to the consideration in Article VI.82, second and third paragraphs, that:
“In assessing the unfair nature, the requirement of plain, intelligible drafting referred to in Article VI.37, first paragraph, must be taken into account.”
“Assessment of the unfair nature of the terms must relate neither to the definition of the main subject-matter of the contract nor to the adequacy of the price and remuneration, on the one hand, as against the services or goods supplied in exchange, on the other, in so far as these terms are in plain, intelligible language.”
Furthermore, the Directive covers only the relationship between the lawyer and the consumer (a B2C relationship) and does not cover the relationship that the lawyer may have with the professional world, i.e., with businesses.
Finally, the Court’s judgment does not concern an ancillary term that creates a significant imbalance between the parties’ rights and obligations arising under the contract to the detriment of the consumer (Article 3(1) of Directive 93/13), which can be annulled without undermining the main purpose of the contract.
This is all the more so as Article 4 of the Directive, by way of exception, considers that the assessment of the unfair nature of terms must relate neither to the definition of the main subject-matter of the contract nor to the adequacy of the price and remuneration, on the one hand, and the services or goods to be provided in return, on the other, in so far as these terms are drafted in a plain, intelligible language (Article 4(2) of Directive 93/13).
And although the Court found that setting the price based on an hourly rate, without any further specification, did constitute the main subject-matter of the contract and failed to meet the transparency requirement, it concluded, in accordance with its case-law, that this did not in itself render the agreement null. But it noted that Lithuanian law establishes this direct link between the lack of transparency, on the one hand, and nullity on grounds of an unfair term, on the other.
The Court subsequently considers that, if the contract between the lawyer and the consumer must be annulled under Lithuanian law, as it is an inevitable sanction of an unfair term that affects the main subject-matter of the contract, the judge cannot make his own assessment of the fee to compensate an imbalance in the opposite direction, and this time to the detriment of the lawyer, but that a price-setting provision under national law could be applied.
Could the Court mean that, with this national law provision that relaces the invalid term regarding cost based on an hourly rate without further specifying Article 463ter of the Judicial Code, the Bar Council is authorized to potentially reduce a fee that would contravene the principle of equitable moderation?
This provision grants the Bar Council the capacity and expertise as regards lawyer fees, but it stipulates at the same time that this information is for the court only.
Let us therefore retain from this judgment that the information on the hourly rate fee calculation method that we give to the consumer, for it to be plain and intelligible, may not be limited to only the mentioning of the hourly rate. With regard to the consumer, it will be necessary to go further and indicate to him on the basis of professional experience that such a case in such a matter could give rise to at least a certain number of hours or such a certain budget. The lawyer will then undertake, after a specific time period, to charge an hourly rate when issuing the intermediate statements so as to reassure the financial relationship between the consumer client and his lawyer.
For the sake of plain and intelligible drafting, we must meet this challenge posed by the transparency requirement.
André RENETTE
Lawyer at the Liege-Huy Bar Association
Jean-Pierre BUYLE
Lawyer at the Brussels Bar Association
[1] Directive 93/13 defines “consumers” as any natural person who, in contracts covered by this Directive, is acting for the purposes that are outside his trade, business, or profession.
[2] Previously, the Court of Justice of the European Union has already held that Directive 93/13 must be interpreted as applying to standard form contracts for legal services concluded by a lawyer with a natural person acting for purposes that are outside his trade, business, or profession. (CJEU, 15 June 2015, Case No. C537/13, J.O.L., 1995, p. 29, cette revue, 2015, p. 254.)
[3] Recital 32.
[4] Recital 33.
[5] Recital 38.
[6] Recital 39.
[7] Recital 40.
[8] Recital 41.
[9] Recital 43.
[10] Our emphasis.
[11] A lawyer who fails to comply with the ethical rule requiring him to inform his client diligently about the calculation method being used for the fee calculation commits a fault. U.P. Saint-Filles, 18 December 2017, JT 2018, p. 440 et obs. S. RvELANDT, «Honoraires d’avocat: de l’importance de l’information préalable»)
[12] See also Art. 111.77, which states that information given to the consumer, especially about the price of the service, must be made available or communicated in a clear and unambiguous manner and on time before the contract is concluded.
