Do entrepreneurs with Swiss franc loans have a chance to revoke the loan agreement?

Just a few years ago, during the so-called franc boom that began with the now famous case of Mr. and Mrs. Dziubak (Judgment of the Court of Justice of the European Union of October 3, 2019 in case no. C-260/18), it was obvious that Swiss franc borrowers can count on the court finding the loan agreement invalid only if they concluded it with the bank as consumers, i.e. they did not do so for professional or economic purposes. Article 22¹ of the Civil Code defines a consumer as a natural person who enters into a legal transaction with an entrepreneur that is not directly related to his or her business or professional activity. This state of affairs resulted from the fact that Swiss franc borrowers, when demanding that the loan agreement be declared invalid, based their claim primarily on the provisions of Art. 385¹ §1 of the Civil Code, according to which Provisions of a contract concluded with a consumer that have not been individually agreed are not binding on him if they shape his rights and obligations in a manner contrary to good practices and grossly violate his interests (prohibited contractual provisions). In other words, it was clear that a borrower who did not have the status of a consumer was deprived of the opportunity to invoke this legal regulation by demanding that the court determine the invalidity of his loan agreement.

New rulings and legal bases

Fortunately, for some time – an example is the judgment of the District Court in Warsaw, XXVI Commercial Division, ref. no. file XXVI GC 586/20 – judgments began to appear in which the courts indicated additional legal grounds for questioning the validity of loan agreements, regardless of the status of the borrower at the time of its conclusion. The leading regulation in this type of matters has become Art. 58 of the Civil Code, according to which a legal act that is inconsistent with the Act or is intended to circumvent the Act or is contrary to good practices is invalid.

Interpretation of Art. 58 of the Civil Code

Therefore, does the above-mentioned provision open the way for all borrowers to demand that the court invalidate their loan agreement?

– In my opinion, yes, because the provisions of Art. 58 of the Civil Code places the emphasis not on the person undertaking a given legal action, but on its purpose and the method of performing the contract – explains attorney Wojciech Nowosadzki from BTLA in Katowice. The contractual provisions used by banks regarding the principles of determining currency exchange rates are contrary to good practice and grossly violate the interests of borrowers. They introduce a clear disproportion of the rights and obligations of the parties by granting only one of them the right to freely establish criteria affecting the amount of the parties’ benefits, while depriving the other party of the opportunity to verify the correctness of the actions of the stronger party to the contract. In addition to the exchange rate risk, the borrower also bears the risk of completely arbitrary shaping of exchange rates by the lender, the lawyer points out.

The role of banks in informing customers

In the vast majority of cases, the so-called Frankowiczów, it is impossible to indicate that the borrower concluded the loan agreement expressing his free will (in accordance with Article 353¹ of the Civil Code), especially if one takes into account the scale of disinformation at the stage before signing the agreement. People representing the bank most often misled the borrower about the mechanisms of operation of a loan indexed to a foreign currency, omitting important information that should be explained in simple, understandable language. A common scenario of concluding an agreement was that bank employees even calmed the borrower’s doubts about the link between his loan and a foreign currency by providing him with false information about the safety and stability of the given currency against which the loan was to be indexed.

The principle of freedom of contract

As indicated by the provision of Art. 353¹ of the Civil Code, the parties concluding a contract may arrange the legal relationship at their discretion, provided that its content or purpose does not contradict the properties (nature) of the relationship, the law or the principles of social coexistence.

The above-mentioned provision should be understood to mean that the parties to the contract are free to freely determine its provisions, but only while maintaining the broadly understood contractual balance. This balance should be understood in such a way that both parties to the contract should be aware of both the advantages and, above all, the risks related to the contract they are to sign. The phrase used by the legislator – “at its discretion” – when interpreting its language cannot be understood in any other way than that both contractual partners sign the contract having full knowledge of its consequences.

It should be noted that loan agreements, concluded for a very long period, due to, among others, for a high loan amount, their task is to arrange the relations between the parties to the contract in such a way as to provide them both with a similar level of security. The bank has the right to assume that the loan will be repaid uninterruptedly for the period specified in the agreement. The borrower, in turn, has the right to assume that the money obtained will meet his needs without threatening his financial stability. Meanwhile, the loan product used by banks destroys the established purpose of the mortgage loan agreement, introducing circumstances on the borrower’s side that disturb his sense of security and lead to disorganization of his life in various aspects. The loan balance expressed in PLN does not decrease at all many years after signing the contract, it is the same as at the beginning or even higher than the balance at the time the loan was launched. Obviously, these are not the ideas and goals associated with a mortgage loan. Certainly, each borrower has one thing in mind – by making constant repayment of loan installments, they should repay the debt as quickly as possible.

The bank’s client (as a client of any other specialized entrepreneur who uses their own contract templates on a daily basis) does not know the rules governing the product that is offered to him. Such a client has the right to count that the contract template prepared by the bank will be fair and will take into account the interests of both parties to the contract.

– Such reasoning is fully justified. Unfortunately, in the case of mortgage loan agreements indexed/denominated to a foreign currency, such reasoning did not work, a clear example of which is the scale of people with toxic credit, the lawyer points out.

It is worth adding that reliable information to customers about the products offered, with an indication of any possible threats resulting from the nature of a given obligation, is the obligation of banking institutions, which results directly from the Code of Banking Ethics (Principles of Good Banking Practice) formulated by the Polish Bank Association.

Here we touch on another limitation to which the principle of freedom of contract is subjected, i.e. principles of social coexistence. This is about the minimum requirement to regulate the content of the legal relationship in a way that does not contradict the criterion of honest and loyal behavior adopted in society, and not about the requirement to maximize the requirements in order to secure the economic interests of both parties [Bernadetta Fuchs, Commentary on Article 353¹ of the Civil Code].

It should be noted that the principle of freedom of contract does not rank particularly high in the hierarchy of legal norms. It is not a constitutional principle. However, the constitutional principle is the principle of economic freedom, which the principle of freedom of contract, understood too broadly, may violate. ” Agreement
to the extent to which it limits the freedom of economic activity (recognized as the basis of the Polish economic system according to Article 20 of the Constitution of the Republic of Poland), on the one hand […] it violates the general clause of the principles of social coexistence and is therefore invalid (Article 58 § 2 of the Civil Code).” (judgment of the Supreme Court of May 20, 2004, II CK 354/03).

Currency risk and banks’ behavior

What is typical for most cases, the so-called Swiss francs is the fact that the borrower was not properly and reliably informed about the fact that a possible increase in the exchange rate of the indexation currency may actually result in even an increase in the liability incurred (which in fact happened). The bank most often presented the borrower only with the advantages of the loan product, while the borrower was very sparingly informed about the threats it contained, i.e. in relation to currency risk. Assurances about the stability of the currency and therefore the security of the loan were intended to convince these undecided borrowers to sign the contract. Such conduct is not prohibited, but it is certainly unfair and therefore contrary to the principles of social coexistence, the lawyer notes.

Bank products and speculative risk

Banking products related to speculative risk have been and are offered and this does not constitute illegal activity. The difference in the scope we are interested in is the duration of the obligation, which must play a key role in assessing whether a given product used by the bank meets the fairness criteria or not. It is easy to imagine that estimating the risk of changing the exchange rate of a given currency in a short period, e.g. several months, is feasible and making possible profits and losses dependent on it may constitute an interesting financial product for a bank client. The situation is different for long-term contracts, often several decades old. It is not possible to estimate highly speculative risk over such a long period. Therefore, if the bank had a product of this nature in its offer, from the point of view of respect for its customers, it should also offer appropriate security for the borrower in the event of a significant increase in the indexation factor. Unfortunately, in times when the so-called loans Swiss franc loans were widely used, and it was difficult to find appropriate security for borrowers in banks’ offers.

What about the statute of limitations?

The Civil Code differentiates limitation periods depending on who they apply to. Thus, for the consumer it will be a period of 6 years (previously 10), while for the entrepreneur it will be only 3 years. Will the entrepreneur be able to demand payment only for the past 3 years? This position seems unjustified. Currently, the courts’ position regarding the limitation period for claims is based on the assumption that the borrower may demand a full refund of what he or she paid to the bank under an invalid contract if he or she submits such a request to the court within 6 years (in the case of consumers) from the moment of learning about the defects resulting in the invalidity of the credit agreement. The courts are of the opinion that the moment of learning about this defect is most often the moment of receiving a certificate from the bank regarding the entire credit history. Therefore, if within the above-mentioned period the borrower files a claim for the refund of installments paid during the entire loan period, the court should accept such a claim in its entirety. Therefore, the position expressed by some industry opinions that in the case of business borrowers, the starting point of the limitation period for claims for payment falls at a different time seems to be inaccurate. Therefore, if an entrepreneur files a claim for payment due to the invalidity of the loan agreement within 3 years of receiving a certificate from the bank, he or she will be able to demand a refund of the entire amount paid to the bank so far.