When is it not worth seeking the annulment of a Swiss franc loan? The Supreme Court rules on the scope of the claim in the lawsuit.

The Supreme Court, in its resolution dated 15 September 2020, case no. III CZP 87/19, ruled that a claim to declare a standard contractual term non-binding on the consumer (art. 385¹ of the Civil Code) is neither identical with nor encompassed by a claim to declare the contract invalid (art. 58 of the Civil Code). It thereby resolved the legal question submitted by the Court of Appeal:

“Whether, in a case between a consumer and a bank concerning the declaration of invalidity in full of a mortgage loan agreement formally concluded in a foreign currency (Swiss francs) but disbursed and repaid in Polish zlotys, the court in appellate proceedings—where it has been established that some contractual terms constitute unfair contractual terms within the meaning of art. 385¹ of the Civil Code—may, pursuant to art. 321 § 1 of the Code of Civil Procedure, rule that only certain contractual provisions (and not the entire contract) are ineffective or invalid?”

Facts of the case

The claimants applied for the entire mortgage loan agreement, which they as consumers had concluded with the bank, to be declared invalid pursuant to art. 58 § 1 of the Civil Code, due to its conflict with art. 69 sections 1 and 2 of the Banking Law, and arts. 358, 353¹, and 385¹ of the Civil Code.

By the judgment of 28 February 2019, the Regional Court dismissed the claim. The Regional Court held that the contract between the parties was not affected by defects that could render it invalid under art. 58 § 1 of the Civil Code. Although the provisions of the contract concerning the sale rate of the franc were ambiguous and did not specify the amount of the currency spread applied by the defendant, and clauses included in the general terms of the contract could be used by the defendant in an arbitrary and discretionary manner, the abusiveness of such a standard contract clause may apply to indexed loans to a foreign currency, where the indexing clause constitutes a type of valuation clause. The case concerned a denominated loan.

Proceedings before the appellate court

The Court of Appeal indicated it must assess whether, after eliminating abusive provisions, the loan agreement binding the parties still contains all the elements necessary to determine the content of the legal relationship between the parties, in particular whether it is possible to establish the loan amount in Polish zlotys, the loan term, repayment dates, and the amount of debt. The elimination of an abusive clause related to the conversion of the obligation into another currency than Polish does not lead to the collapse or invalidity of the contract in the remaining scope nor to changes in the amount or terms of interest on the loan. This means that despite excluding all ties to another currency than Polish, the loan remains interest-bearing according to the LIBOR rates usually applied for the Swiss franc. It is irrelevant that the bank would probably not have set the interest rate on a Polish zloty loan according to the LIBOR rate if it had been aware of the abusiveness of the valuation clause. The criterion of the hypothetical will of the parties, irrelevant when assessing contract clauses and consequences of their invalidation under art. 385¹ of the Civil Code, could have significance if the contractual provisions between the parties were assessed under art. 58 § 3 of the Civil Code.

According to the Court of Appeal, there is a doubt whether, having been convinced of the validity of the contract binding the parties after removing abusive provisions, it may—given that the claimants submitted exclusively a claim for declaring the contract invalid—rule only on the invalidity or ineffectiveness of abusive provisions or only some of them. The source of this doubt is that the court must identify abusiveness of contract clauses ex officio and apply the proper legal consequences ex officio in relation to the legal relationship governed by the contract. By analogy a maiori ad minus, it can be inferred that within a claim for declaration of invalidity, it is included that only some contractual provisions may be invalid. However, this reasoning does not seem applicable in cases where consumers pursue claims connected with the entrepreneur’s introduction of abusive clauses into the contract template.

Proceedings before the Supreme Court

The Supreme Court noted that articles 385¹–385³ of the Civil Code, under which the courts of merits examined the clauses contained in the loan agreement concluded by the parties, were introduced to implement Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (OJ L 1993 No 95, p. 29), which became applicable in Poland on 1 May 2004. This Directive, amended several times, obliges Member States to set general criteria for assessing unfairness of contract terms, listing exemplary terms to be regarded as unfair, and requires the creation in national law of a system of consumer protection measures against entrepreneurs imposing unfair terms in contracts without individual negotiation. Directive 93/13 establishes minimum requirements for the consumer protection system. Its implementation aims to ensure that consumer contracts are drafted in plain and understandable language, and the consumer has an actual opportunity to become acquainted with all terms before concluding the contract, with doubts in their application interpreted in favour of the consumer. Unfair clauses contained in the contract will not bind the consumer, ensuring, however, that the contract remains binding between the parties if it can still operate after excluding unfair terms (art. 6 of Directive 93/13).

The legislator, implementing the Directive, in art. 385¹ § 2 of the Civil Code, defined the consequences of introducing an unfair contractual term. It provides that the sanction is ex lege ineffectiveness of the unfair provision, assuming that provisions defining the main performance of the parties are subject to abusiveness control only when not formulated unequivocally. Other contractual provisions are subject to such control whenever the court knows they were concluded between an entrepreneur and a consumer. Pursuant to art. 385¹ § 2 of the Civil Code, if the unfair term does not bind the consumer, the parties remain bound by the contract in other respects. In principle, abusiveness of some contractual provisions does not imply invalidity of the contract. A finding that a contractual provision has the characteristics under art. 385¹ § 1 of the Civil Code and is subject to the sanction under art. 385¹ § 2 excludes the application of art. 58 § 3 to the contract and that provision. It is, however, beyond doubt that if exclusion of the unfair term deforms the contractual framework to the extent that rights and obligations of the parties cannot be reconstructed, the parties cannot be bound by the remaining part of the contract.

Invalidity of provisions is not the same as invalidity of the contract

That a claim for declaration of ineffectiveness of a contract or invalidity of only some of its provisions is not included in a claim for declaration of contract invalidity follows from differences between factual circumstances which justify a declaration that the parties did not validly conclude the contract, and those circumstances which justify only the invalidity or ineffectiveness of some contract provisions. More importantly, these judgments lead to entirely different consequences in substantive law concerning the rights and obligations of the parties. Contract invalidity releases the parties from the obligation to perform it, but entails other types of settlements than those based on a contract where only some provisions are invalid or ineffective.

Consequences

The ruling applies to cases related to loans indexed or denominated in Swiss francs or other foreign currencies. The court noted that the principle that courts are bound by the claim in the lawsuit means that already at the commencement of proceedings the subject matter can be specified, directing procedural actions to clarify circumstances materially relevant to the case and making the proceedings predictable for the defendant. This principle is therefore important not only for the court but also for the defendant, enabling them to prepare for trial, understand the consequences the claimant derives from the facts related to the defendant, and mount an appropriate defence. This has special importance in Swiss franc-related cases and provides grounds for the court not to grant a claim declaring a Swiss franc loan agreement invalid solely on account of abusive provisions contained therein.