Case C-350/03

Elisabeth Schulte and Wolfgang Schulte

v

Deutsche Bausparkasse Badenia AG

(Reference for a preliminary ruling from the Landgericht Bochum)

(Consumer protection – Doorstep selling – Purchase of immovable property – Investment financed by a secured loan – Right of cancellation – Effects of cancellation)

Opinion of Advocate General Léger delivered on 28 September 2004

Judgment of the Court (Grand Chamber), 25 October 2005

Summary of the Judgment

1. Approximation of laws – Consumer protection – Article 95(3) EC – Provision which cannot be relied on directly as a basis for obligations which are binding on a Member State

(Art. 95(3) EC)

2. Approximation of laws – Consumer protection in the case of contracts negotiated away from business premises – Directive 85/577 – Scope – Contracts for the sale of immovable property which are a component of an investment scheme financed by a loan – Not included

(Council Directive 85/577, Art. 3(2)(a))

3. Approximation of laws – Consumer protection in the case of contracts negotiated away from business premises – Directive 85/577 – Loan agreement serving to finance the purchase of immovable property – Cancellation – Effects – Obligation to repay immediately with interest – Whether permissible

(Council Directive 85/577, Arts 4, 5 and 7)

1. Article 95(3) EC, which provides that the Commission, in its proposals envisaged in paragraph 1 of that article concerning consumer protection, is to take as a base a high level of protection, and that, within their respective powers, the European Parliament and the Council of the European Union are also to seek to achieve that objective, is directed at the various institutions, which each have their role in the legislative process. That provision cannot, therefore, be relied on directly as a basis for obligations which are binding on a Member State. At the most the provision could be used as an aid to interpretation of the Directive.

(see paras 59, 61)

2. Article 3(2)(a) of Council Directive 85/577 to protect the consumer in respect of contracts negotiated away from business premises must be interpreted as excluding from the scope of the Directive contracts for the sale of immovable property even where they are merely a component of an investment scheme financed by a loan for which the negotiations prior to the conclusion of the contract were held in a doorstep-selling situation, both as regards the contract for the purchase of the immovable property and the loan agreement serving solely to finance that purchase.

(see para. 81, operative part 1)

3. Although, under Article 7 of Directive 85/577 to protect the consumer in respect of contracts negotiated away from business premises, it is for the Member States to legislate as regards the legal effects of cancellation of the contract by the consumer, that power must be exercised in accordance with Community law and, in particular, the rules of the Directive interpreted in the light of its objective and in such a way as to ensure that it is fully effective.

In that regard, in the case of a loan agreement serving to finance the purchase of immovable property, the Directive does not preclude:

- national rules which limit the effect of cancellation of the loan agreement to the avoidance of that agreement, even in the case of investment schemes in which the loan would not have been granted at all without the acquisition of the immovable property;

- a requirement that a consumer who has exercised his right to cancel under the Directive must pay back the loan proceeds to the lender, even though according to the scheme drawn up for the investment the loan serves solely to finance the purchase of the immovable property and is paid directly to the vendor thereof;

- a requirement that the amount of the loan must be paid back immediately;

- national legislation which provides for an obligation on the consumer, in the event of cancellation of a secured credit agreement, not only to repay the amounts received under the agreement but also to pay to the lender interest at the market rate. However, in a situation where, if the bank had complied with its obligation to inform the consumer of his right of cancellation, the consumer would have been able to avoid exposure to the risks inherent in investments, Article 4 of the Directive requires Member States to ensure that their legislation protects consumers who have been unable to avoid exposure to such risks, by adopting suitable measures to allow them to avoid bearing the consequences of the materialisation of those risks.

(see paras 69, 81, 88-89, 93, 103, operative part 2-3)

JUDGMENT OF THE COURT (Grand Chamber)

25 October 2005 ( )

(Consumer protection – Doorstep selling – Purchase of immovable property – Investment financed by a secured loan – Right of cancellation – Effects of cancellation)

In Case C-350/03,

REFERENCE for a preliminary ruling under Article 234 EC, from the Landgericht Bochum (Germany), made by decision of 29 July 2003, received at the Court on 8 August 2003, in the proceedings

Elisabeth Schulte,

Wolfgang Schulte

v

Deutsche Bausparkasse Badenia AG,

THE COURT (Grand Chamber),

composed of V. Skouris, President, P. Jann and A. Rosas, Presidents of Chambers, C. Gulmann (Rapporteur), R. Schintgen, N. Colneric, S. von Bahr, R. Silva de Lapuerta and K. Lenaerts, Judges,

Advocate General: P. Léger,

Registrar: M.-F. Contet, Principal Administrator,

having regard to the written procedure and further to the hearing on 15 June 2004,

after considering the observations submitted on behalf of:

– Mr and Mrs Schulte, by M. Koch and M. Beckmann, Rechtsanwälte,

– Deutsche Bausparkasse Badenia AG, by M. Pap and N. Gross, Rechtsanwälte,

– the German Government, by W.-D. Plessing, A. Dittrich and P.-C. Müller-Graff, acting as Agents,

– the French Government, by R. Loosli-Surrans, acting as Agent,

– the Italian Government, by I.M. Braguglia, acting as Agent, assisted by A. Cingolo, avvocato dello Stato,

– the Commission of the European Communities, by J. Sack and J.-P. Keppenne, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 28 September 2004,

gives the following

Judgment

1 The reference for a preliminary ruling concerns the interpretation of Article 95(3) EC and Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises (OJ 1985 L 372, p. 31, ‘the Directive’), in particular Articles 3(2), 4, 5 and 7 thereof.

2 The reference was made in proceedings brought by Mr and Mrs Schulte against Deutsche Bausparkasse Badenia AG (‘the Bank’), concerning the effects of the cancellation, under the applicable national law on doorstep selling, of the secured credit agreement concluded between the Bank and Mr and Mrs Schulte.

Legal context

The Community legislation

3 The Directive is intended to provide consumers in the Member States with a minimum of protection in the area of doorstep selling, in order to protect them from the risks arising on the conclusion of a contract away from the business premises of the trader. The fourth and fifth recitals of the preamble to the Directive read:

‘… the special feature of contracts concluded away from the business premises of the trader is that as a rule it is the trader who initiates the contract negotiations, for which the consumer is unprepared or which he does not expect; … the consumer is often unable to compare the quality and price of the offer with other offers; …

… the consumer should be given a right of cancellation over a period of at least seven days in order to enable him to assess the obligations arising under the contract’.

4 Article 1(1) of the Directive provides:

‘This Directive shall apply to contracts under which a trader supplies goods or services to a consumer and which are concluded:

…

– during a visit by a trader:

to the consumer’s home or to that of another consumer;

…

where the visit does not take place at the express request of the consumer’.

5 Article 3(2) of the Directive provides:

‘This Directive shall not apply to:

(a) contracts for the construction, sale and rental of immovable property or contracts concerning other rights relating to immovable property.

…’

6 Article 4 of the Directive provides:

‘In the case of transactions within the scope of Article 1, traders shall be required to give consumers written notice of their right of cancellation within the period laid down in Article 5, together with the name and address of a person against whom that right may be exercised.

Such notice shall be dated and shall state particulars enabling the contract to be identified. It shall be given to the consumer:

(a) in the case of Article 1, at the time of conclusion of the contract;

...

Member States shall ensure that their national legislation lays down appropriate consumer protection measures in cases where the information referred to in this Article is not supplied.’

7 Article 5 of the Directive provides:

‘1. The consumer shall have the right to renounce the effects of his undertaking by sending notice within a period of not less than seven days from receipt by the consumer of the notice referred to in Article 4, in accordance with the procedure laid down by national law.

…

2. The giving of the notice shall have the effect of releasing the consumer from any obligations under the cancelled contract.’

8 Article 7 of the Directive provides: ‘If the consumer exercises his right of renunciation, the legal effects of such renunciation shall be governed by national laws, particularly regarding the reimbursement of payments for goods or services provided and the return of goods received.’

9 Article 8 of the Directive provides that it ‘shall not prevent Member States from adopting or maintaining more favourable provisions to protect consumers in the field which it covers’.

The case-law of the Court

10 In its judgment in Case C-481/99 Heininger [2001] ECR I-9945, the Court interpreted three aspects of the Directive.

11 First, it held that the Directive applied to secured credit agreements, that is to say, credit agreements for financing the purchase of immovable property. In paragraph 32 of that judgment, it held that, whilst an agreement of the type in question is linked to a right relating to immovable property, in that the loan must be secured by a charge on immovable property, that feature is not sufficient for the agreement to be regarded as concerning a right relating to immovable property for the purposes of Article 3(2)(a) of the Directive.

12 It concluded that a consumer who has entered into a secured credit agreement in a doorstep-selling situation has a right of cancellation under Article 5 of the Directive. It pointed out, in paragraph 35 of that judgment, that the effects of a cancellation of that agreement in accordance with the Directive on the contract for the purchase of the immovable property and on the provision of security in the form of a charge on it fall to be governed by national law.

13 Finally, the Court observed that the minimum period of seven days allowed for cancellation must be calculated from the time the consumer receives the notice concerning his right of cancellation from the trader. In paragraph 48 of the judgment in Heininger it held that the doorstep-selling directive precludes the national legislature from imposing a time-limit of one year from the conclusion of the contract within which the right of cancellation provided for in Article 5 of that Directive may be exercised, where the consumer has not received the information specified in Article 4.

The national legislation

14 The Directive was transposed into German law by the Gesetz über den Widerruf von Haustürgeschäften und ähnlichen Geschäften (Law on the cancellation of doorstep transactions and analogous transactions) of 16 January 1986 (BGBl. 1986 I, p. 122, the ‘HWiG’).

15 In the version applicable at the material time, Paragraph 1(1) of the HWiG provides:

‘Where the customer was induced to make a declaration of intention to conclude a contract for a service for valuable consideration:

1. by oral negotiations at his place of work or in a private home,

…

that declaration of intention takes effect only if the customer does not give written notice revoking it within a period of one week’.

16 Paragraph 3 of the HWiG provides:

‘(1) In the event of cancellation, each contracting party shall return to the other whatever it has received. Damage to or loss of the object or any other matter preventing the return of the object shall not preclude cancellation. If the customer is liable for the damage, loss or other matter preventing return, he shall pay the difference in value or the value of the object to the other contracting party.

(2) Where the customer has not been informed pursuant to Article 2 and has not otherwise been made aware of his right of cancellation, he shall be held liable for the damage, loss or other matter preventing return only if he has not exercised the care he usually exercises with his own possessions.

(3) For the right to use or apply goods and for the other services supplied up to the date of cancellation, the value of such right or services must be paid; loss of value as a result of normal use of goods or other services shall be disregarded.

(4) The customer may demand compensation from the other party for necessary expenditure on the goods.’

17 The German legislature transposed Council Directive 87/102/EEC of 22 December 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit (OJ 1987 L 42, p. 48) by adopting the Verbraucherkreditgesetz (law on consumer credit) of 17 December 1990 (BGBl. 1990 I, p. 2840, the ‘VerbrKrG’). That law, in its original version, was in force at the material time and until 30 September 2000.

18 Paragraph 9 of the VerbrKrG provides:

‘1. A purchase agreement constitutes a transaction linked with the credit agreement if the credit serves to finance the purchase price and both agreements are to be regarded as a single economic unit. In particular, a single economic unit shall be presumed where the lender relies on the seller’s cooperation in the preparation or conclusion of the credit agreement.

2. The consumer’s declaration of intention to conclude the linked purchase agreement shall be valid only if the consumer does not revoke … his declaration of intention to conclude the credit agreement.

The notice concerning the right of cancellation … must state that, in the event of cancellation, the purchase agreement linked with the credit agreement will not be valid either … If the net amount of the credit has already been paid to the seller, the lender shall, in relation to the consumer and with regard to the legal effects of cancellation, be subrogated to the seller’s rights and obligations arising from the purchase agreement …

…’.

19 Paragraph 3(2) of the VerbrKrG provides:

‘Nor shall:

…

2. Paragraphs 4(1)(3)(1)(b), 7, 9 and 11 to 13 apply to credit agreements in which credit is subject to the giving of security by way of a charge on immovable property and is granted on the usual terms for credits secured by a charge on immovable property and the intermediate financing of the same …’.

The main proceedings

20 According to the order for reference, since the end of the 1980s, the Bank has financed the purchase of old apartments. These properties are generally blocks of flats constructed as social housing in the 1960s and 1970s which were purchased by Allgemeine Wohnungsvermögens AG, partly renovated and then offered for sale. Heinen & Biege GmbH (‘Heinen & Biege’), which acts as an intermediary in providing property and financial services, handled the marketing of the properties and arranged finance.

21 In the context of this marketing scheme, Mr and Mrs Schulte were contacted in February 1992 by a representative of Heinen & Biege who offered them an investment involving the purchase of property financed by a loan. The property was to be occupied by third parties and, for tax reasons, the purchase was to be financed entirely by a loan.

22 On 28 April 1992 Mr and Mrs Schulte purchased an apartment for DEM 90 519. The purchase agreement was signed before a notary, in accordance with the relevant German legislation.

23 Solely in order to finance the purchase, on 7 April 1992 Mr and Mrs Schulte took out a loan of DEM 105 000 from the Bank, secured by a charge on the property for the same amount which was created by a notarised deed of 8 May 1992. In the deed the Mr and Mrs Schulte also undertook personal liability for the payment of the amount of the charge and agreed to the possibility of the immediate enforcement of the loan agreement against their entire assets. At the Bank’s request, they also had to join a pool for rental income, which was supposed to ensure the equal distribution of all the rental income from the whole of the property complex.

24 Finally, the purchasers entered into two ‘real estate savings’ agreements with the Bank, each covering half of the amount borrowed. It was agreed that the loan would be redeemed only with the maturity of the first real estate savings agreement. The loan agreement contained no information regarding the right of cancellation within the meaning of the HWiG.

25 Once all the agreements had been concluded and the securities required by the loan agreement had been provided, the Bank paid the amount of DEM 101 850.00 directly to the company selling the immovable property, in accordance with written instructions from Mr and Mrs Schulte.

26 As Mr and Mrs Schulte failed to meet their monthly repayment obligations under the loan agreement, the Bank terminated the agreement, demanded immediate repayment of the loan and, in the absence of any payment, sought to enforce payment on the basis of the notarised deed of 8 May 1992.

27 In November 2002 Mr and Mrs Schulte cancelled the loan agreement on the basis of Paragraph 1 of the HWiG and instituted proceedings against the enforcement before the Landgericht Bochum.

28 They submitted before that court that in February 1992 they were contacted at home by a representative of Heinen & Biege who presented a tax-saving scheme to them and that subsequently three consultations were held within a short period, also at their home, during which, in addition to the property, they were offered complete financing, which was in the event solely that provided by the Bank. They were specifically informed that, under the chosen financing scheme, the property would be financed by the associated tax advantages and the rental income. Both the loan agreement and the real estate savings agreement were then signed at their home.

29 They consider that the Bank must take responsibility for the doorstep-selling situation, since it has worked closely with the company acting as intermediary for many years, and the entire negotiation phase of the contracts was conducted on behalf of the Bank.

30 Mr and Mrs Schulte also submitted that the purchase contract and the loan agreement must be regarded as a single economic unit and that they are therefore merely required to retransfer ownership of the property pursuant to the fourth sentence of Paragraph 9(2) of the VerbrKrG which applies in any event by analogy.

31 The Bank disputed that the loan agreement was negotiated in a doorstep-selling situation. Even if that were the case, it could not be held liable in law for this situation since the sales representative was an employee of the intermediary sales company whose role in the conclusion of the loan agreement was restricted to filling in the forms and the transmission of information.

32 Moreover, the Bank took the view that it is irrelevant whether or not Mr and Mrs Schulte have a right of cancellation under the HWiG since, even if it is assumed that the cancellation declared pursuant to Paragraph 1 of the HWiG is effective, they are required to repay the amount of the loan paid out, or the net amount of credit and compensation for use of the funds at the contractually agreed rates of interest or at least the normal market rates. In the alternative, the Bank counterclaimed that the plaintiffs should be ordered to repay the loan proceeds paid out in the sum of DEM 101 850.00 with interest at the statutory rate.

The questions referred for a preliminary ruling

33 The Landgericht Bochum observes that, in national law, the cancellation of a secured credit agreement results in the avoidance of the contract, so that, under Paragraph 3 of the HWiG, each party must return to the other whatever it has received and must pay for the use of what was supplied up to the date of cancellation. It adds that the Bundesgerichtshof has consistently held that a loan is deemed to have been ‘received’ by a borrower even if the amount of the loan has not been paid to that borrower but directly to a third party on his instructions.

34 It follows that, in the event of the cancellation of a secured credit agreement, Paragraph 3(1) and (3) of the HWiG gives the lending Bank a right to repayment of the net amount of credit paid with interest at the market rate.

35 The Landgericht Bochum explains that the dispute in the main proceedings turns essentially on the question whether, once Mr and Mrs Schulte have exercised their right to cancel the secured credit agreement, the Bank can invoke an entitlement to immediate repayment of the loan in full under Paragraph 3(1) of the HWiG, as interpreted by the Bundesgerichtshof. It considers that this consequence is harsh for the consumer and that other interpretations could be envisaged in national law.

36 In particular, the secured credit agreement and the property purchase contract could be regarded as a single economic unit within the meaning of Paragraph 9(2) of the VerbrKrG so that, once the secured credit agreement was cancelled, the borrower would no longer be bound by the property purchase contract and the Bank would be subrogated to the seller’s rights and obligations under the fourth sentence of that provision. Therefore the consumer would no longer have to repay the amount of the loan to the Bank, but only to transfer ownership of the property financed by the loan and pay for the use made of it to date. Another approach, which would not even require recourse to Paragraph 9(2) of the VerbrKrG, would be to recognise the loan agreement and the purchase contract as constituting a single economic unit, in which case, the cancellation of one agreement would entail the avoidance of the other, given that the protective purpose of the cancellation provisions requires that the borrower should not have to bear the burden of repaying the loan.

37 However, the Landgericht Bochum points out that, according to the settled case-law of the Bundesgerichtshof, upheld by the judgment in Heininger, Paragraph 9 of the VerbrKrG does not apply to secured credit agreements by virtue of Paragraph 3(2) of the VerbrKrG. Under that case-law, the secured credit agreement and the purchase of immovable property financed by the loan are not deemed to be linked agreements constituting a single economic unit. Consequently, the cancellation of the secured credit agreement does not affect the validity of the purchase contract for immovable property financed by that credit agreement.

38 The Landgericht Bochum raises the question whether a national provision such as Paragraph 3 of the HWiG, as interpreted by the Bundesgerichtshof, is compatible with Community law, as the legal consequences of that interpretation of the provision do not seem consistent with the protective purpose of the right of cancellation.

39 It observes in that regard that the repayment obligation resulting from that interpretation entails that a consumer who concluded a loan agreement without being notified of his right of cancellation and now exercises that right — which, according to the judgment in Heininger, is temporally unlimited — is in a worse economic position than if the loan agreement subsisted. As its enforcement could result in the bankruptcy of the consumer, the obligation to repay immediately and in full might deter consumers from exercising their right of cancellation under Article 5 of the Directive.

40 Against that background, the Landgericht Bochum decided to stay proceedings and refer the following questions to the Court for a preliminary ruling:

‘1. Does Article 3(2)(a) of [the Directive] also apply to contracts for the purchase of immovable property which must be regarded as merely a component of a credit-financed capital investment scheme and where the contract negotiations conducted up to the conclusion of the contract were held in a doorstep-selling situation, as defined in Paragraph 1 of the [HGWiG], both as regards the contract for the purchase of the immovable property and the loan agreement serving solely to finance that purchase?

2. Are the requirements of a high level of protection in the field of consumer protection (Article 95(3) EC) and the effectiveness of consumer protection safeguarded by [the Directive] satisfied by a national legal system or the interpretation thereof which limits merely to the reversal of the loan agreement the legal effects of the revocation of the declaration of intent to enter into a loan agreement, even in connection with such capital investment schemes in which the loan would not have been granted at all without the acquisition of the immovable property?

3. Does a national rule on the legal effects of cancelling a loan agreement to the effect that the cancelling consumer must pay back the loan proceeds to the financing bank, even though according to the scheme drawn up for the capital investment the loan serves solely to finance the immovable property and is paid directly to the vendor of the immovable property, go far enough to fulfil the protective purpose of the rule on cancellation laid down in Article 5(2) of [the Directive]?

4. Where legal effect of cancellation, under national law, results in the consumer being required, after declaring cancellation, immediately to pay back the loan proceeds which, in accordance with the scheme drawn up for the capital investment, have thus far not been redeemed at all, plus interest thereon at the normal market rate, is this effect contrary to the requirement of a high level of protection in the field of consumer protection (Article 95(3) EC) and to the principle of the effectiveness of consumer protection enshrined in [the Directive]’?

The questions

Admissibility

41 The questions referred are based on the premiss that the credit contract at issue in the main proceedings was concluded in a doorstep-selling situation.

42 The Bank has doubts about the admissibility of the questions referred, as the Langericht Bochum has not, it argues, ruled as to whether the credit agreement was concluded in a doorstep-selling situation. The Bank submits that, until that question is resolved, the questions referred are of a hypothetical nature.

43 As to those submissions, it is solely for the national court before which the dispute has been brought, and which must assume responsibility for the subsequent judicial decision, to determine in the light of the particular circumstances of the case both the need for a preliminary ruling in order to enable it to deliver judgment and the relevance of the questions which it submits to the Court. However, the Court has held that it has no jurisdiction to give a preliminary ruling on a question submitted by a national court where it is quite obvious that the interpretation of Community law sought by that court bears no relation to the actual facts of the main action or its purpose or where the problem is hypothetical (Case C-415/93 Bosman [1995] ECR I-4921, paragraphs 59 and 61).

44 The referring court observes that, if Mr and Mrs Schulte were to be required to repay immediately and in full the amount of the loan with interest, it might not have to tackle the question whether the Bank had validly terminated the loan agreement or whether Mr and Mrs Schulte had validly cancelled their declaration of intention to conclude the loan agreement pursuant to the HWiG. In both cases, Mr and Mrs Schulte were bound to repay the amount of the loan immediately and in full.

45 Accordingly, it is not possible to assert that the questions referred are manifestly hypothetical or bear no relation to the actual facts of the main action or its purpose.

Merits

Preliminary observations

– The investment at issue in the main proceedings

46 The investment which Mr and Mrs Schulte made has the following characteristics in particular.

47 An intermediary put forward a proposal that the couple purchase an apartment which was offered for sale by a company which had purchased and renovated a large number of apartments in order to resell them.

48 For tax reasons, the purchase of that apartment was to be fully financed by a loan.

49 The intermediary’s proposal was that the purchase price and the transaction costs would be financed by a loan from the bank secured by means of a charge, and Mr and Mrs Schulte were to be personally liable for the debt.

50 Mr and Mrs Schulte undertook to join a pool for rental receipts from the apartments in the residential complex which was intended to ensure an even distribution of the rental receipts.

51 The investment in the apartment, financed entirely by the loan, was supposed not to require any expenditure by Mr and Mrs Schulte, as the loan was supposed to be repaid by means of the rental receipts in conjunction with certain tax advantages.

52 It was not disputed before the Court that such investments entail not only the risk of an over valuation of the apartment at the time of purchase, but also the risks that the anticipated rental receipts fail to materialise and that expectations concerning the development of property prices prove mistaken.

53 It appears that, in the case of Mr and Mrs Schulte, those two risks materialised.

54 In the case in the main proceedings, following the judgment in Heininger, Mr and Mrs Schulte cancelled the loan agreement pursuant to the HWiG, believing that that would release them from all their obligations towards the Bank.

– The scope of the questions referred for a preliminary ruling

55 The referring court states that, under the national legislation applicable at the material time, although, on cancellation, a borrower is released from all his obligations arising from the loan agreement, he must repay the loan immediately and in full with interest. That court points out that, under the applicable national legislation, as interpreted by the Bundesgerichtshof, it is irrelevant that the loan was paid directly to the vendor of the apartment by the Bank and it is not possible, in circumstances such as those of this case, to regard the loan agreement and the purchase contract as contracts forming a single economic unit.

56 It is not really in dispute before the Court – and the Bundesgerichtshof has confirmed in its case-law (judgment of 12 November 2002, BGHZ 152, 331) – that, in those circumstances, in German law, there is generally little or no financial advantage to be gained from cancellation of a loan agreement. The consumer would be in the same position as he would have been if it had not been cancelled, or even in a worse position in that he would have to pay what was owed immediately rather than in instalments as provided for by the contract.

57 It is in the light of that finding that the referring court raises the question whether, in providing that cancellation of a loan agreement concluded in a doorstep-selling situation has such legal effects, German law is consistent with Community law.

58 The first two questions referred concern the effect of cancellation on the purchase contract and the last two questions concern the effect of cancellation on the loan agreement.

– The applicable Community law

59 In the second and fourth questions, the referring court refers to Article 95(3) EC which provides that the Commission, in its proposals envisaged in paragraph 1 of that Article concerning consumer protection, is to take as a base a high level of protection, and that, within their respective powers, the European Parliament and the Council of the European Union are also to seek to achieve that objective.

60 It must be observed, first of all, that that provision, which was inserted in the EC Treaty in 1986 by the Single European Act, was not applicable at the time the Directive was adopted in 1985.

61 Moreover, even if it were applicable, that provision is directed at the various institutions, which each have their role in the legislative process, and cannot, therefore, be relied on directly as a basis for obligations which are binding on a Member State. At the most the provision could be used as an aid to interpretation of the Directive.

62 Accordingly, the relevant rules of Community law for answering the questions referred are those of the Directive.

63 First, it must be borne in mind that, according to its Article 8, the Directive is not to prevent Member States from adopting or maintaining more favourable provisions to protect consumers in the field which it covers.

64 Next, according to its Article 1, the Directive applies to any contract concluded between traders and consumers, apart from certain contracts exhaustively listed in Article 3(2) of the Directive, notably contracts for the sale of immovable property.

65 Finally, the protection conferred on a consumer who has concluded a contract in a doorstep-selling situation consists, specifically, under Article 5(1) of the Directive, in the option the consumer has to cancel the contract within seven days of being informed by the trader of his right to cancel, the trader being bound by an obligation to provide that information under the first paragraph of Article 4 of the Directive.

66 That is what the Court observed in paragraph 38 of its judgment in Heininger, pointing out, first, that the Directive is designed to protect consumers against the risks arising from the conclusion of contracts away from the trader’s premises and, second, that the protection of the consumer is assured by the introduction of a right of cancellation.

67 As regards the effects of cancellation, Article 5(2) of the Directive provides that the cancellation is to release the consumer from any obligations under the cancelled contract and Article 7 of the Directive provides that the legal effects of such cancellation are to be governed by national laws.

68 In paragraph 35 of the judgment in Heininger the Court referred to the latter of those provisions, adding that although a credit agreement falls within the scope of the doorstep-selling directive, the effects of a cancellation of that agreement in accordance with the directive on the contract for the purchase of the immovable property and on the provision of security in the form of a charge on it fall to be governed by national law.

69 Although it is thus for the Member States to legislate as regards the legal effects of cancellation, that power must be exercised in accordance with Community law and, in particular, the rules of the Directive interpreted in the light of its objective and in such a way as to ensure that it is fully effective. In fulfilling their obligations under a Directive the Member States are to take all the measures necessary to ensure that the directive is fully effective, in accordance with the objective it pursues (Case C-336/97 Commission v Italy [1999] ECR I-3771, paragraph 19, and Case C-324/01 Commission v Belgium [2002] ECR I-11197, paragraph 18).

70 It must be added that the Court has held that a directive cannot of itself impose obligations on an individual and cannot therefore be relied upon as such against an individual (Case C‑91/92 Faccini Dori [1994] ECR I-3325, paragraph 20, and Joined Cases C‑397/01 to C‑403/01 Pfeiffer and Others [2004] ECR I-8835, paragraph 108).

71 However, when hearing a case between individuals, the national court is required, when applying the provisions of domestic law adopted for the purpose of transposing obligations laid down by a directive, to consider the whole body of rules of national law and to interpret them, so far as possible, in the light of the wording and purpose of the directive in order to achieve an outcome consistent with the objective pursued by the directive (see Pfeiffer and Others, cited above, paragraph 120).

The first and second questions, concerning the effect of cancellation of the loan agreement on the purchase contract

72 By its first question, the referring court seeks an interpretation of Article 3(2) of the Directive, which excludes from the scope of the Directive, inter alia, contracts for the sale of immovable property. It asks whether that exclusion also covers contracts for the purchase of immovable property which must be regarded as merely a component of an investment scheme financed by a loan for which the negotiations prior to the conclusion of the contract were held in a doorstep-selling situation, both as regards the contract for the purchase of the immovable property and the loan agreement serving solely to finance that purchase.

73 By its second question, the referring court asks essentially whether the Directive precludes national rules which limit the effect of cancellation of the loan agreement to the avoidance of that agreement, even in the case of investment schemes in which the loan would not have been granted at all without the acquisition of the immovable property.

74 According to the order for reference, that court referred those two questions on the basis of its view that in circumstances such as those of the main proceedings, the two contracts could constitute contracts forming a single economic unit, so that the cancellation of the loan agreement could affect the validity of the purchase contract and, as a result of his cancellation of the first contract, the borrower could no longer be bound by the second.

75 In that connection, it must first be found that the Directive expressly and unequivocally excludes contracts for the sale of immovable property from its scope.

76 While other Community directives intended to protect the interests of consumers, inter alia Directive 87/102, contain rules concerning connected contracts, the Directive contains no rule of that type and provides no basis for an assumption that such rules are implied.

77 In some of the observations submitted to the Court, inter alia those of the French Government, it is stated that it follows from the judgment in Case C-423/97 Travel Vac [1999] ECR I-2195 that the Directive applies to a doorstep-selling situation which results in the conclusion of a contract for sale of immovable property, which is an integral part of a larger group of contracts also including a loan agreement secured by a charge, a real estate savings agreement and a contract for the administration of the property, where those contracts must be construed as a contract for the provision of services whose value is higher than that of the immovable property.

78 That view cannot be upheld. The timeshare contract at issue in Travel Vac, which was held not to fall within the exclusion provided for by Article 3(2) of the Directive, is not comparable to the contracts at issue in the main proceedings, if only because that judgment concerned a single contract for property rights and services in which the latter were predominant, whereas, in the case in the main proceedings, there were two legally separate transactions with different purposes.

79 Moreover, the Court has already pointed out, in paragraph 35 of its judgment in Heininger, that the effects of a cancellation of a secured credit agreement in accordance with the directive on the contract for the purchase of the immovable property and on the provision of security in the form of a charge on it fall to be governed by national law.

80 Accordingly, while the Directive does not preclude national law from providing, where the two contracts form a single economic unit, that the cancellation of the secured credit agreement has an effect on the validity of the contract for sale of the immovable property, it does not require such an effect in a case such as that described by the referring court.

81 The answer to the first two questions should therefore be that:

– Article 3(2)(a) of the Directive must be interpreted as excluding from the scope of the Directive contracts for the sale of immovable property even where they are merely a component of an investment scheme financed by a loan for which the negotiations prior to the conclusion of the contract were held in a doorstep-selling situation, both as regards the contract for the purchase of the immovable property and the loan agreement serving solely to finance that purchase;

– the Directive does not preclude national rules which limit the effect of cancellation of the loan contract to the avoidance of that agreement, even in the case of investment schemes in which the loan would not have been granted at all without the acquisition of the immovable property.

The third and fourth questions, on the effect of cancellation on the loan contract

82 First, the referring court asks whether the Directive, and Article 5(2) thereof in particular, precludes a national rule to the effect that a consumer who has exercised his right to cancel under the Directive must pay back the loan proceeds to the lender, even though according to the scheme drawn up for the investment the loan serves solely to finance the purchase of the immovable property and is paid directly to the vendor thereof.

83 In the view of Mr and Mrs Schulte and the Italian Government, such an obligation is not consistent with the protective purpose of Article 5(2) of the Directive. Mr and Mrs Schulte submit that, in the case of a transaction forming a single economic unit which was artificially split into a purchase transaction and a financing transaction, the right of cancellation conferred by the Directive is ineffective if the cancellation of the transaction is restricted to only one of the transactions, that is to say the loan agreement. In their view, because of the overall nature of the transaction, the consumer never received the money loaned himself nor did he have any influence over the payment of the money. In such a case, it would be contrary to the principle of effectiveness if the consumer had to repay to the Bank the amount of a loan of which he had never received payment himself.

84 In that regard, suffice it to observe, as the Bank, the German Government and the Commission did, that the two facts mentioned in this question – that is that the loan was solely for the purpose of purchasing immovable property and was paid directly to the seller – reflect a widely followed practice.

85 Moreover, contrary to the contentions of Mr and Mrs Schulte, the amount borrowed cannot be considered not to have been received by the borrower when it was paid directly by the lending Bank to the seller of the immovable property, where, as in the case in the main proceedings, the Bank acted on the instructions of the consumers, who, in consideration of the payment of the amount borrowed, were able to acquire title to immovable property.

86 Accordingly, even if the loan serves solely to finance the purchase of immovable property and is paid directly to the seller, the Directive does not preclude a requirement that the consumer repay the amount of the loan.

87 Second, the referring court asks whether, in a situation such as that in the main proceedings, the Directive precludes a requirement that the amount of the loan be repaid immediately.

88 In that regard, it must be borne in mind that, as the Bank, the German Government and the Commission pointed out, under Article 5(2) of the Directive, the giving of notice of cancellation has the effect of releasing the consumer from any obligations under the cancelled contract. Such cancellation of the obligations of the consumer entails, for the consumer and for the lender, the restoration of the status quo ante.

89 Accordingly, the Directive does not preclude an obligation on the consumer to repay to the lender immediately the amount he borrowed, in the event of cancellation of a secured credit agreement.

90 Third, the referring court seeks to know whether, in a situation such as that in the main proceedings, the Directive precludes national legislation which provides for an obligation on the consumer, in the event of cancellation of the contract, not only to repay the amounts received under the contract but also to pay to the lender interest at the market rate.

91 In the view of Mr and Mrs Schulte, such legislation is contrary to the principle of effective consumer protection laid down by the Directive. In the view of the Bank and the German Government, even when account is taken of the effectiveness of the consumer protection which it guarantees, the Directive contains no requirement which would preclude such national legislation.

92 In that regard, it must be observed that the exercise of the right of cancellation provided for by Article 5(1) of the Directive, in the case of a loan agreement, has the effect under Article 5(2) of releasing the consumer from any obligations under the cancelled agreement, which implies the restoration of the status quo ante.

93 Accordingly, the Directive does not preclude national legislation which provides for an obligation on the consumer, in the event of cancellation of a secured credit agreement, not only to repay the amounts received under the contract but also to pay to the lender interest at the market rate.

The requirements under the Directive in the event of failure to comply with the obligation to inform the consumer of his right of cancellation

94 Although the Directive does not generally preclude the application of national rules under which a consumer who cancels a credit agreement must immediately repay the loan in full with interest at the market rate in circumstances in which the trader has complied with the obligation to inform the consumer incumbent on him under Article 4 of the Directive, the same is not necessarily true where the trader has not complied with that obligation.

95 In that connection, it must be observed that under the third paragraph of Article 4 of the Directive, Member States are to ensure that their national legislation lays down appropriate consumer protection measures in cases where the information referred to in this article is not supplied

96 It must be observed that, if the referring court takes the view that the cancellation was valid, the fact that the Bank did not inform Mr and Mrs Schulte of their right of cancellation and that they cancelled the credit agreement after several years is relevant for the assessment of the dispute in the main proceedings.

97 If the Bank had informed Mr and Mrs Schulte of their right of cancellation under the HWiG at the correct time, they would have had seven days to change their minds about concluding the loan agreement. If they had chosen then to cancel it, it is common ground that, given the link between the loan agreement and the purchase contract, the latter would not have been concluded.

98 In a situation where the Bank has not complied with the obligation to inform the consumer incumbent on it under Article 4 of the Directive, if the consumer must repay the loan under German law as construed in the case-law of the Bundesgerichtshof, he bears the risks entailed by financial investments such as those at issue in the main proceedings, as described in paragraph 52 of this judgment.

99 However, in a situation such as that in the main proceedings, the consumer could have avoided exposure to those risks if he had been informed in time of his right of cancellation.

100 In those circumstances, the Directive requires Member States to adopt appropriate measures so that the consumer does not have to bear the consequences of the materialisation of those risks. The Member States must therefore ensure that, in those circumstances, a bank which has not complied with its obligation to inform the consumer bears the consequences of the materialisation of those risks so that the obligation to protect consumers is safeguarded.

101 Accordingly, in a situation where, if the Bank had informed the consumer of his right of cancellation, the consumer would have been able to avoid exposure to the risks inherent in investments such as those at issue in the main proceedings, Article 4 requires Member States to ensure that their legislation protects consumers who have been unable to avoid exposure to such risks, by adopting suitable measures to allow them to avoid bearing the consequences of the materialisation of those risks.

102 As observed in paragraph 71 of this judgment, the national courts are required to interpret national legislation, so far as possible, in order to achieve the outcome described in paragraph 101 of this judgment.

103 In the light of the foregoing, the answer to the third and fourth questions must be that the Directive does not preclude:

– a requirement that a consumer who has exercised his right to cancel under the Directive must pay back the loan proceeds to the lender, even though according to the scheme drawn up for the investment the loan serves solely to finance the purchase of the immovable property and is paid directly to the vendor thereof;

– a requirement that the amount of the loan must be paid back immediately;

– national legislation which provides for an obligation on the consumer, in the event of cancellation of a secured credit agreement, not only to repay the amounts received under the agreement but also to pay to the lender interest at the market rate.

However, in a situation where, if the Bank had complied with it obligation to inform the consumer of his right of cancellation, the consumer would have been able to avoid exposure to the risks inherent in investments such as those at issue in the main proceedings, Article 4 of the Directive requires Member States to ensure that their legislation protects consumers who have been unable to avoid exposure to such risks, by adopting suitable measures to allow them to avoid bearing the consequences of the materialisation of those risks.

Costs

104 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

On those grounds, the Court (Grand Chamber) hereby rules:

1. Article 3(2)(a) of Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises must be interpreted as excluding from the scope of the Directive contracts for the sale of immovable property even where they are merely a component of an investment scheme financed by a loan for which the negotiations prior to the conclusion of the contract were held in a doorstep-selling situation, both as regards the contract for the purchase of the immovable property and the loan agreement serving solely to finance that purchase.

2. Directive 85/577 does not preclude national rules which limit the effect of cancellation of the loan agreement to the avoidance of that agreement, even in the case of investment schemes in which the loan would not have been granted at all without the acquisition of the immovable property.

3. Directive 85/577 does not preclude:

– a requirement that a consumer who has exercised his right to cancel under the Directive must pay back the loan proceeds to the lender, even though according to the scheme drawn up for the investment the loan serves solely to finance the purchase of the immovable property and is paid directly to the vendor thereof;

– a requirement that the amount of the loan must be paid back immediately;

– national legislation which provides for an obligation on the consumer, in the event of cancellation of a secured credit agreement, not only to repay the amounts received under the agreement but also to pay to the lender interest at the market rate.

However, in a situation where, if the Bank had complied with it obligation to inform the consumer of his right of cancellation, the consumer would have been able to avoid exposure to the risks inherent in investments such as those at issue in the main proceedings, Article 4 of Directive 85/577 requires Member States to ensure that their legislation protects consumers who have been unable to avoid exposure to such risks, by adopting suitable measures to allow them to avoid bearing the consequences of the materialisation of those risks.

[Signatures]