In an explicit reference for a preliminary ruling addressed to the Court of Justice of the European Union (“CJEU”), District Court Sofia (“DCS”) has raised a number of questions related to certain controversial practices of mobile operators in Bulgaria.

CJEU will have to assess whether these practices comply with the European legislation which protects consumers from unfair clauses in contracts with traders.

More specifically, the questions referred for a preliminary ruling relate to the operators' practices for (i) unilateral increase (indexing) the prices of contracts, and (ii) imposition and accumulation of penalties that are burdensome and unclear to consumers in the event of early termination of the contract by the consumer or other non-performance.

Some mobile operators maintain a practice of annually indexing the monthly contract subscription fee based on the annual average consumer price index indicated by the National Statistical Institute.

The issues here are twofold - on the one hand, the indexation clauses are often vaguely worded and the consumer has no way of knowing under what precise external circumstances, beyond the control of the parties, the price will be subject to indexation and what will be the exact economic consequences for him, i.e. how much more he shall owe. In practice, indexation is applied by simply “adding” the amount of the annual increase to the first invoice of the year, according to the mobile operator's calculations.

Further, DCS questions the validity of the indexation clause, bearing in mind that it does not provide for the possibility of a price reduction at all (irrespective of the inflation “movement”), but only for its increase, which places the burden entirely on consumers.

Important questions have also been raised concerning the way in which the penalty clauses are drafted. Under Bulgarian law, the so-called “unfair clauses”, i.e. clauses to the detriment of the consumer which do not meet the requirement of good faith and lead to a significant imbalance, are null and void.

The pertinent question posed by the DCS is whether the concept of an “unfair clause” should be interpreted strictly, i.e. as a specific provision of the contract, visually separated from the other contractual provisions, or whether the assessment of unfairness can also be made on the basis of a group of clauses which may formally be found in different “parts” of the contract but regulate the consequences of the same legal fact.

The referral has been submitted in view of the tendency of mobile operators to provide for different types of penalties in contracts which, however, cover the same non-performance. When examined individually, the clauses in question probably do not meet the definition of “unfair clauses”, but when analyzed together, they create a situation of unfairness for the consumer. If the answer to the question is that their cumulative effect should be examined, DCS poses a further question - should all the clauses be declared null and void collectively, if they lead jointly to unfairness in the contract?

Attention is also drawn to another particularity in this type of contracts - mobile operators do not usually set the penalties as a fixed amount, but as an amount equal to the standard monthly fee for a certain period, notwithstanding that the consumer has benefited from a certain discount and is not aware of the amount of the “standard” price. In a number of cases, there is also an additional obligation on the consumer to repay a portion of the value of the discounts received under the subscription plan and to repay the discount made on the market price of the devices purchased by him (e.g. mobile phones). Such an arrangement undoubtedly calls into question whether the penalty clause is sufficiently clear and understandable for the average consumer and whether it again creates a significant imbalance in the relationship between the parties in favour of the trader.

CJEU's decision will be key in determining the legality of these practices. Earlier this year, the Bulgarian Consumer Protection Commission (“CPC”) has already banned mobile operators from implementing unfair aggressive commercial practices, namely - the charging of additional penalties (fees) for early termination of a contract, thereby, in effect, providing its opinion in advance on some of the issues raised by DCS.

The referral is part of a lengthy examination of the practices of mobile operators in Bulgaria in court and in proceedings before the CPC. In some of the class action cases brought against operators, rulings have already been issued in favor of the consumers. In this respect, it was recently announced on the CPC's website that mobile operators have voluntarily proposed revisions to the penalty clauses and are actively offering their customers to terminate their relationship or to re-sign their existing contracts and agree explicitly with the increasing tariffs.

We assume, in view of the above, and especially in view of the way in which the questions were formulated by DCS, from which a pro-consumer position is “apparent”, that the CJEU will agree with CPC's view and confirm that these practices by mobile operators are unlawful.

The ruling will be binding to all Member States and is likely to lead to significant changes in mobile operators' practices and legislation not only in Bulgaria but also across other European Union countries.