Spain’s Supreme Court rules borrowers are to pay for Stamp Duty. Borrower’s hopes quashed (again), banks win (again)

Raymundo Larraín Nesbitt, November, 7. 2018

Blog post copyrighted © 2018. Plagiarism will be criminally prosecuted.

Photo credit: CC BY-SA 3.0, by FDV.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
7th November 2018


In an unsurprising déjà vu, banks dodged (again) a multi-billion euro bullet thanks to Spain’s High Court (again).

Section III of Spain’s Supreme Court ruled last night in a closed vote with 15 in favour, 13 against and 3 absentees that borrowers are to pay for Stamp Duty on applying for mortgage loans.

Enterprising litigation lawyers on no win no fee will now have to do a great deal of explaining to clients on why they have lost their court cases. We always warned clients not to pursue this course of action and tried to dissuade clients from litigating on this matter as they were bound to lose. Unfortunately, time has proved us right (again).


Lender’s to pay for mortgage setup costs – 27th of January 2017

Recap of Legal Actions in Spain against Banks & Others – 21st March 2017

Spain’s Supreme Court quashes borrower’s hopes on refunds for mortgage set up costs – 1st March 2018

So, after three harrowing weeks, since the fateful ruling of the High Court last 16th of October, which plunged the whole mortgage market into chaos and triggered a massive stock slide, we have run full circle and we are now back at where we started.

But are we really?

Not a chance. Although the Supreme Court chose the lesser of two evils, choosing the option I had defended and advised all along was taken, it has not emerged unscathed from the public ordeal it got itself into for no good reason.

As I pointed out in my previous blog post, Spain’s Supreme Court wreaks havoc in the mortgage market, regardless of which of the two options were taken, the Supreme Court had clumsily painted itself into a corner and was going to be severely criticized one way or another regardless of what it chose. Such is the nature of getting oneself into such a sticky situation that no one called for.

Whilst small lower courts judges in Spain are snowed under court cases, overworked, underpaid, understaffed, overclocked, working in precarious and outdated conditions, they still manage (somehow) to lead the brunt of the fight against the abuse of all-powerful lenders.

Supreme Court magistrates, on the other hand, would seem to take a rather difference stance from their lower peers adopting a more laid-back attitude.

I believe it is no longer opinionable whether Spain’s Supreme Court is biased or not towards banks; it is now a fact. You only need to examine the key rulings over the last 5 years where billions of euros were at stake to determine this court always bends over backwards to rule in favour of lenders and against consumers in general. It is no longer a widely-held perception, it is now factual in light of recent events.

Back in 2009, I was one of the first lawyers that severely criticized banks on abusive clauses in mortgage loans. As an example this article: 10 Common Abusive Clauses in Spanish Mortgage Loans - 04 Jun 2009. The very first point of this abusive clause list were floor clauses, or cláusulas suelo in Spanish.  It wasn’t until five years later, in May 2013, where the Supreme Court finally acknowledged these clauses as abusive and therefore as null and void.  In Law we have a Roman maxim which is still applied nowadays: “Quod nullum est nullum producit effectum.” What the High Court magistrates should have ruled, was to give the nullity retroactive effects to all bank-related mortgages making banks pay for their greed during the property boom – they did not.

The magistrates, in one of those rare black or white cases, twisted laws and a two-thousand-year-old Roman Law maxim to ply themselves in the interests of lenders making them dodge a multi-billion euro bullet. The only magistrate that dared break rank from his peers with a vote against was the only magistrate who in fact had NOT worked for lenders in the past nor had any professional ties to them; Mr. Francisco Javier Orduña Moreno, to his credit. I commented on this in great detail at the time: European Court of Justice Slams ‘Floor Clauses’. The ECJ - an independent EU High Court - had no qualms ruling against Spanish banks over this matter.

So, where I’m getting at is that over the last five years the Supreme Court has bent over backwards to please and accommodate the powerful banking sector, the real power in the shade in Spain. For the first time ever, last 16th of October magistrates of Section II of the Supreme Court defied this long-standing status quo ruling against it in what would have costed lenders an estimated 14 billion euros if the ruling had retroactive effects over the last 4 years. Unfortunately, this was not really the occasion to rule against banks and I’ve publicly upheld this ruling was both reckless and unjust to banks which on this occasion were being treated unfairly given existing laws.

Not 24 hours had passed from this landmark ruling when the President of Section III of the Supreme Court put the ruling’s effects on hold and called for a general vote to uphold or overturn this breaking ruling. This was unheard of and, to the best of my limited knowledge, there are no precedents on calling such a plenary vote. I wonder if the aggrieved had been anybody else other than lenders, if the Supreme Court would have shown the same lightning reflexes and acted as hastily as it did calling for an unprecedented vote. It begs the question.

Whilst I strongly disagreed with this ruling, because the magistrates involved had out of the blue, on the back of recent public outcries against banks, unilaterally decided to rewrite decades-old tax laws (which I get were poorly drafted and even highly questionable, but ultimately they were laws and needed to be respected or else had to be formally repealed) creating great legal insecurity and instability this was not the right time to rule against lenders. These high magistrates have had multiple occasions in the past to rule in favour of consumers in clear cut cases (and have not) and most certainly this was not one of them.

As I write again, God forbid I defend lender’s interests, but in this particular case it was only of justice that the ruling was in favour of banks because they were right. Magistrates need to interpret, and construe laws, not make them up as they go along or else we turn ourselves into a South American banana republic in which I for one do not want to live in.

As a result of the gross mismanagement of this whole affair, the Supreme Court has lost face to no end. It is of vital importance for a healthy Democracy, specially one as young as Spain’s which not long ago was under the claws of a dictatorship, that Society places trust in its institutions, specially one as significant as the Supreme Court. Because of its recent track record, where it has ruled time and time again in favour of banks, I believe the general public no longer see the High Court as independent but as a lackey of higher interests. And this in a Democracy is simply unacceptable.

As I wrote on my previous blog post, working in the private sector I have personally witnessed how executives were sacked or else handed over their resignations on much lighter issues. This unprecedented debacle has brought the whole mortgage market to its knees for three weeks, has threatened the much anticipated financial recovery, has triggered a massive stock sell-off, has threatened the planned budget for next year, has beset the coffers of regional Authorities, has brought into question the independence of the Supreme Court, has exposed the underbelly of this prestigious High Court showing that dissension is rife, has tarnished its reputation, has damaged to no end the image and credibility of Justice in Spain, has sparked public outroar and will now lead to massive public manifestations and protests all over Spain over the next weeks and months.

With all this in mind, I believe that a severe shake up is warranted, and we need more than a simple off-handed apology from the President of the High Court (Mr Lesmes). This man is tasked with overseeing the Supreme Court and only found about this whole matter on reading the morning press (his words!). The honourable exit would be for him to resign given the gravity of what's happened and his enormous oversight. Directly responsible as well is the President of Section III of the Supreme Court, Mr Díez-Picazo, who by the way happens to work as part time university teacher in the prestigious private centre CUNEF (run by Spain's Banking Association, AEB); he created this fiasco, grossly mishandled the whole affair freezing the ruling against banks when not even 24 hours had elapsed and called for an unprecedented vote to overturn it. As section President, his prerogative is to be the last one to vote in the extraordinary plenary and proved to be the decisive vote needed to tip the scales in favour of banks. There is no question he should hand in his immediate resignation too. And last but not least, are the magistrates involved that signed such an unfair ruling against banks and have been publicly called out for it; I simply do not know how going forward they can show up at work every day.

Bottom line, the market, Society at large, demand more than a casual apology from the S.C. President for this whole fiasco that has brought into question the entire system on which we lean on. To restore confidence and bring balance, a visible change has to be seen and someone needs to step forward and assume the mantle, taking ownership for the gross mishandling we have witnessed over the last weeks and set it straight. At least, this is what should happen in any self-respecting modern democracy.

The only positive outcome of this whole debacle, is that no one talks any longer on the separatist problem.

Pay no attention to that man behind the curtain!”' – Wizard of Oz.


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