48. Legal claims
As at 31 December 2020, the total value of the subject matter of litigation in court proceedings (trials) pending in which the companies belonging to the PKO Bank Polski Group S.A. were defendants amounted to PLN 2 064 million (as at 31 December 2019: PLN 1 194 million), and the total value of the subject matter of litigation in court proceedings (trials) pending in which the companies belonging to the PKO Bank Polski Group S.A. were claimants as at 31 December 2020 was PLN 2 607 million (as at 31 December 2019: PLN 2 527 million).
litigation against the Bank relating to mortgage loans in convertible currencies
As at 31 December 2020, 5 372 legal proceedings were pending against the Bank (as at 31 December 2019: 1 645) relating to mortgage loans granted in previous years in foreign currency with a total value in dispute of PLN 1 404 million (as at 31 December 2019: PLN 392 million), including one group proceeding with 72 loan agreements. The Bank’s customers’ claims concerned mainly demands to determine the invalidity of all or part of the agreements or to receive reimbursement of allegedly undue benefits in connection with the abusive nature of the foreign currency clauses. None of the clauses used by the Bank in the agreements was entered in the register of prohibited contractual provisions. The number of lawsuits filed by customers against the Bank is significantly influenced by the intensive advertising campaign of law firms, which encourages borrowers to commission to them – for a fee – the conducting of cases against banks.
On 3 October 2019, the Court of Justice of the European Union (hereinafter: CJEU) issued a ruling in case C 260/18 initiated by preliminary questions formulated by the Circuit Court in Warsaw. The Bank was not a party to the proceedings before the CJEU.
The Group monitors on an ongoing basis the state of court rulings on loans indexed or denominated in foreign currencies in terms of shaping and possible changes to the rulings.
As at 31 December 2020, 75 final rulings have been issued by the courts in cases against the Bank (including 33 rulings after 3 October 2019). 48 of these rulings (including in 10 rulings issued after 3 October 2019) are favourable for the Bank. The Bank files cassation complaints to the Supreme Court against final rulings unfavourable to the Bank.
On 29 January 2021, in connection with the discrepancies in the interpretation of legal provisions in the jurisprudence of the Supreme Court and common courts and in order to ensure the uniformity of jurisprudence, the First President of the Supreme Court submitted a request for the full panel of the Civil Chamber of the Supreme Court to resolve the following legal issues concerning the subject of loans denominated and indexed in foreign currencies (legal basis: Article 83 § 1 of the Act of 8 December 2017 on the Supreme Court):
1. If a provision of an indexed or denominated loan agreement relating to the method of determining the foreign currency exchange rate is found to constitute an illicit contractual provision and is not binding on the consumer – is it then possible to assume that another method of determining the foreign currency exchange rate resulting from law or custom takes its place?
If the above question is answered in the negative:
2. In the event that it is impossible to establish a foreign currency exchange rate binding on the parties in a loan agreement indexed to such a currency, can the remainder of the agreement still be binding for the parties?
3. If it is not possible to establish a binding rate for a foreign currency in a loan agreement denominated in a foreign currency, can the remainder of the agreement still be binding for the parties?
Notwithstanding the content of the answers to questions 1 to 3:
4. In the event of the invalidity or ineffectiveness of a loan agreement, in the performance of which the bank disbursed to the borrower all or part of the amount of the loan and the borrower made repayments of the loan, do separate claims for wrongful performance arise for each of the parties, or does only a single claim arise, equal to the difference in performance, for the party whose total performance was higher?
5. Where a loan agreement is invalid or ineffective as a result of the unlawful nature of certain of its terms, does the limitation period for the bank’s claim for repayment of the sums paid under the loan begin to run from the time at which those sums were paid?
6. If, in the case of the invalidity or ineffectiveness of a loan agreement, either party has a claim for repayment of a performance made in the performance of that agreement, can that party also claim a fee for the use of its funds by the other party?
A session of the full composition of the Civil Chamber for the examination of the above-mentioned the application was scheduled for 25 March 2021. Currently, the scheduled date of the meeting is 11 May 2021.
On 29 April 2021, a ruling by the CJEU (C-19/20) on 5 questions referred for a preliminary ruling by the District Court in Gdańsk is scheduled. The judgment of the CJEU may be of significant importance for all disputes regarding loans indexed or denominated to CHF, because the questions of the District Court concern, inter alia, the nature of the judgment declaring the invalidity of the contract and the related issue of limitation and the scope of informing the consumer by the court about claims due to banks in the event of invalidity , including a claim for a return of capital and a claim for payment of remuneration for the use of capital.
The directions of the Supreme Court’s ruling may affect the revision of the assumptions adopted for the model of calculating the legal risk costs of the portfolio of mortgage loans granted in a foreign currency, and thus the level of the estimated impact of this risk. Due to the inability to predict the shape of the resolution of individual issues by the Supreme Court, in the opinion of the Management Board, at the time of preparing these financial statements, it is not possible to reliably estimate the value of the impact of the Supreme Court’s position on the level of legal risk costs of the portfolio of mortgage loans denominated and indexed in foreign currencies as at 31 December 2020.
The Group has identified a risk that the planned cash flows from the portfolio of foreign currency denominated and indexed mortgage loans may not be fully recoverable and / or that a liability will arise resulting in a future cash outflow. The Group reduces the gross carrying amount of mortgage loans denominated and indexed in foreign currencies and / or creates provisions for legal risk in accordance with the requirements of IFRS 9 Financial Instruments and IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The cost of legal risk was estimated taking into account a number of assumptions that materially affect the amount disclosed in the Group’s financial statements (for details, see the note „Cost of legal risk of mortgage loans in convertible currencies”).
In December 2020, the Chairman of the Polish Financial Supervision Authority (hereinafter „the Chairman of the Polish Financial Supervision Authority”) presented a proposal aimed at a systemic solution to the problem of housing loans in Swiss francs. This solution assumes that banks will voluntarily offer their clients the option of concluding settlements under which the clients would settle accounts with the bank as if their loans were from the beginning PLN loans bearing interest at the WIBOR reference rate increased by the margin used historically for such loans.
On 9 February 2021, the National Bank of Poland issued a communiqué on the possible involvement in the operation of currency conversion of housing foreign currency loans. The Management Board of the National Bank of Poland welcomes the initiatives of banks aimed at limiting the legal risk of foreign currency housing loans through agreements with borrowers. In this context, the NBP Management Board is considering a possible involvement in the process of converting foreign currency housing loans into PLN, on the terms and at market rates.
The Group analyzed the benefits and risks related to possible options for proceeding with foreign currency housing loans. In the opinion of the Capital Group, reaching a compromise and reaching a settlement is both more beneficial for its clients than engaging in long-term court proceedings with uncertain resolution.
The Group conducted a survey among its clients which showed that about 70 percent of them are interested in concluding a settlement with the Bank. Currently, the Group is conducting a pilot of settlements, under which it participates in mediation at the arbitration court at the PFSA and concludes settlements before common courts.
On 23 April 2021, the Extraordinary General Meeting of Shareholders accepted the possibility of offering settlements to Customers. Therefore, estimating the costs of legal risk of mortgage loans denominated in foreign currencies, the Capital Group recognized the impact of forecasted settlements.
Court proceedings against the Bank concerning reimbursement of the commission in the event of early repayment of loans
As at 31 December 2020, 203 court proceedings were pending against the Bank with a total disputed amount of PLN 907 thousand, concerning the reimbursement of the commission in the event of early repayment of all or part of a loan liability by the customer (as at 31 December 2019: 102 court proceedings with a total litigation value of PLN 640 thousand).
The provision for such proceedings as at 31 December 2020 amounted to PLN 694 thousand (PLN 355 thousand as at 31 December 2019).
On 11 September 2019, the Court of Justice of the European Union (“CJEU”) issued its ruling in Case C-383/18 initiated by a request for a preliminary ruling from the District Court for Lublin-East in Lublin with its seat in Świdnik. The Bank was not a party to the proceedings before the CJEU.
The Group has made an estimate of possible early repayments that may occur in the future and relate to the consumer and mortgage loan portfolio, recognizing their impact as a reduction in the gross carrying amount of consumer and housing loans of PLN 149 million as at 31 December 2020. Moreover, the Group estimated the likely costs of satisfying customer complaints relating to reimbursement of commission in connection with early repayments in the past. They were recognized in the balance of provisions as at 31 December 2020 in the amount of PLN 24 million and as at 31 December 2019 in the amount of PLN 104 million (note “Provisions”).
Three proceedings have been brought before the President of UOKiK ex officio and are currently in progress:
- Proceedings initiated ex officio on 28 June 2017 on the acknowledgement that the provisions of the template agreement are inadmissible. The violation alleged against the Bank relates to using contractual provisions concerning the method of determining the rates of foreign currency purchase and sale in the template agreements for mortgage loans indexed/denominated to foreign currencies and annexes thereto, which, in the opinion of the President of UOKiK, may be considered prohibited under Article 385 § 1 of the Civil Code. In the decision of 16 October 2020, the President of UOKiK declared the provisions of the template agreement “Annex to the housing loan/mortgage loan agreement” in the section “Appendix to the annex ‘Rules for determining foreign exchange spreads at PKO BP S.A.’” as inadmissible provisions and prohibited their use. In addition, the President of UOKiK ordered that all consumers being parties to the assessed annexes be informed about the decision to declare them inadmissible and about the consequences resulting therefrom, not later than within 3 months from the date on which the decision became legally binding and ordered that a declaration be submitted, with the contents as indicated in the decision, not later than 1 month from the date the decision became legally binding, which is to be kept on the website for 4 months. Furthermore, the President of UOKiK imposed on the Bank a fine of PLN 41 million, payable to the Financial Education Fund. On 13 November 2020, the Bank filed an appeal against the UOKiK decision with the Court of Competition and Consumer Protection. As at 31 December 2020, the Bank recorded a provision against this litigation of PLN 41 million.
- Proceedings initiated on 26 July 2017 ex officio concerning using practices which violate the collective interests of customers. The violation with which the Bank has been charged consists of collecting higher instalments on loans and advances denominated in foreign currencies to customers than those following from the advice about interest rate risk provided to customers before they had concluded the contracts, and transferring possible currency risk to the customers. The Bank presented its position on the claims in its letter dated 23 September 2017. In a letter dated 14 March 2019, the UOKiK President asked the Bank 16 detailed questions in order to establish the circumstances that are necessary to resolve the case. The Bank gave the answers in a letter dated 10 May 2019. As at 31 December 2020, the President of UOKiK did not take any further steps in this matter. As at 31 December 2020, the Group had not set up a provision for the proceedings.
- Proceedings initiated ex officio on 12 March 2019 on the acknowledgement that the provisions of the template agreement are inadmissible. The proceedings are related to modification clauses which specify the circumstances in which the Bank is entitled to amend the terms and conditions of the agreement, including the amount of fees and commission. In the opinion of the President of UOKiK the modification clauses applied by the Bank give the Bank unilateral unlimited and arbitrary possibilities to modify the performance of the agreement. Consequently, the President of UOKiK is of the opinion that the clauses applied by the Bank shape the rights and obligations of the consumers in a way that is contrary to good practice and are in gross violation of their interests, which justifies the conclusion that they are abusive. In its letter of 31 May 2019, the Bank presented its position on the charges made by the President of UOKiK. In a letter dated 30 December 2020 the President of UOKiK extended the term of concluding the proceedings until 31 March 2021. As at 31 December 2020, the Group had not set up a provision for these proceedings.
The Bank is a party to proceedings initiated by the President of the Office of Competition and Consumer Protection (UOKiK) on the basis of a decision dated 23 April 2001 upon the request of the Polish Trade and Distribution Organization – Employers Association (Polska Organizacja Handlu i Dystrybucji – Związek Pracodawców) against operators of the Visa and Europay payment systems and banks issuing Visa and Europay/ Eurocard/ Mastercard banking cards.
The claims under these proceedings relate to the use of practices limiting competition on the market of banking card payments in Poland, consisting of applying pre-agreed “interchange” fees for transactions made using the Visa and Europay/Eurocard/Mastercard cards as well as limiting access to this market for external entities. On 29 December 2006, UOKiK decided that the practices, consisting of joint determination of the “interchange” fee, did limit market competition and ordered that any such practices should be discontinued, and imposed a fine on, among others, the Bank, in the amount of PLN 16.6 million. The Bank appealed against the decision of the President of UOKiK to the Court for Competition and Consumer Protection (Sąd Ochrony Konkurencji i Konsumentów – SOKiK). By the ruling dated 21 November 2013 SOKiK reduced the fine imposed on the Bank to PLN 10.4 million. The parties to the proceedings appealed against the ruling. The Court of Appeal in Warsaw in its ruling dated 6 October 2015 reinstated the initial amount of the imposed fines set in the decision of the UOKiK, i.e. the fine of PLN 16.6 million (the fine imposed on PKO Bank Polski S.A.) and the fine of PLN 4.8 million (the fine imposed on Nordea Bank Polska S.A.. PKO Bank Polski S.A. is a legal successor of Nordea Bank Polska S.A. through a merger in accordance with Article 492 § 1(1) of the Commercial Companies Code). The fine was paid by the Bank in October 2015. As a result of the cassation complaint made by the Bank, in its ruling dated 25 October 2017, the Supreme Court revoked the appealed ruling of the Court of Appeal in Warsaw and submitted the case for re-examination. The fine paid by the Bank was reimbursed to the Bank on 21 March 2018. On 23 November 2020, the Court of Appeal in Warsaw issued a ruling in which it revoked the ruling of the District Court in Warsaw dated 21 November 2013 and submitted it for re-examination. As at 31 December 2020 the Bank recorded a provision for this litigation of PLN 21 million.
Claims for damages in respect of the interchange fee
The Bank was served six summons to participate, as an outside intervener on the defendant’s side in cases relating to the interchange fees. Other banks are respondents on the defendant’s side. The claims vis-à-vis the sued banks amount to a total of PLN 783 million and are pursued as damages for differences in interchange fees resulting from applying practices that limit competition. Since these proceedings are not pending against the Bank, their value was not included in the total value of the cases against the Bank.
If the courts find the claims justified, the defendants may claim recourse in separate court proceedings from other banks, including, among others, from PKO Bank Polski S.A.. As at 31 December 2020, the Bank entered five proceedings as an outside intervener.
Other unfair competition proceedings
In 2020, PKO Bank Hipoteczny S.A. submitted documents and information to the President of UOKiK as part of two investigations concerning the rules of deferring the repayment of mortgage loans under the so-called “commercial” and “statutory loan vacations” during the pandemic period and PKO Życie Towarzystwo Ubezpieczeń S.A. conducted correspondence concerning the statement of UOKiK’s President without initiating proceedings on the method of fulfilling the insurance benefits in connection with permanent and total disability, inability to work or limited capabilities of unaided existence. Other entities of the Bank’s Group did not conduct any arrangements with UOKiK in the aforementioned period.
Re-privatization claims relating to properties held by the Group
As at the date of the consolidated financial statements, there are:
- three proceedings involving reprivatization claims. One of the proceedings has been suspended. In the second proceeding which ended with a final court ruling favourable to the Bank, the opposing party lodged a cassation complaint, and the Supreme Court accepted it for consideration. In the third proceeding the subject matter of which is to confirm the invalidity of the decision refusing to grant temporary ownership of the Bank’s property to the applicant, a cassation complaint has been lodged with the Voivodeship Administrative Court against the final decision discontinuing the proceedings as groundless. The claim was rejected by the Voivodeship Administrative Court but the opponent appealed against this decision.
- seven proceedings, including one suspended in respect of real properties of other members of the Bank’s Group, related to declaring the invalidity of administrative decisions or the reimbursement of the property.
The Management Board of PKO Bank Polski S.A. believes that the probability of serious claims against the Group as a result of the aforesaid proceedings is low.