New Supreme Court resolution concerning Swiss franc loans

Provisions in indexed foreign currency loan agreements which authorise the lender to unilaterally determine the exchange rate used to calculate the borrower’s debt and set the loan instalments, without objective and verifiable criteria stipulated in the agreement, are contrary to the nature of such a legal relationship. Such provisions, if they meet the criteria for being deemed unfair contractual terms, are not invalid but do not bind the consumer within the meaning of Article 385¹ of the Civil Code. This was held by the Supreme Court in its resolution of 28 April 2022, file ref. III CZP 40/22.

According to the ruling, in credit agreements concluded with consumers, if objective criteria are not applied, the loan contract provisions are not considered invalid but fall under the scope of abusive clause regulations. Therefore, they will not bind the borrower-consumer within the meaning of Article 385¹ § 1 of the Civil Code. The resolution was adopted by a panel of three judges of the Civil Chamber of the Supreme Court.

Discrepancy in Case Law

The question referred to the Supreme Court aimed to resolve the prolonged divergence in case law concerning the validity of indexed foreign currency loan agreements where the bank may unilaterally determine the exchange rate without objective criteria.

Until now, courts have adopted one of the following interpretative approaches:

• The loan contract provisions were considered invalid under Article 353¹ of the Civil Code, which provides that the content of a legal relationship cannot contradict the nature of that relationship, statutory law, or the principles of social coexistence.
• The loan contract provisions were regarded as not binding on consumers due to regulations on abusive clauses. Under the aforementioned Article 385¹ § 1 of the Civil Code, contract terms concluded with a consumer that were not individually negotiated do not bind the consumer if they shape their rights and obligations in a manner contrary to good practice and grossly violate their interests.

The difference between these views is significant. The second interpretative line limits invalidity to consumers only.

Despite numerous proceedings relating to loans denominated in Swiss francs pending before common courts, discrepancies persist in case law regarding the nature of these provisions. Although the Supreme Court has assessed the structure of indexed bank loan agreements, it has not expressly ruled on the conformity of such provisions with the nature of the legal relationship or the applicability of the provisions on abusive clauses.

Implications of the Resolution for Ongoing Proceedings

As correctly noted by the Warsaw Court of Appeal, which submitted the question to the Supreme Court: “The resolution of this issue may be significant for a number of similar cases, but also for cases where, for example, the loan agreement has a mixed character, where part of the loan is intended for non-consumer purposes related to business activity, or where the consumer status applies only to one of the borrowers.”