55. Litigation and claims

As of 31 December 2021, there were no proceedings in the court, arbitration tribunal or state administration authorities regarding liabilities or receivables of the Bank, the value of which would exceed 10% of the Bank’s equity.

On 6 October 2015, the Court of Appeals issued a decision regarding calculation of the interchange fee by banks acting in agreement. Thus, the decision of the 1st instance (Regional) Court of 2013 was changed by dismissing the banks’ appeals in whole, while upholding the appeal brought by the Office of Competition and Consumer Protection (UOKiK), which had questioned a considerable reduction in the fines by the 1st instance court. This denotes that the penalty imposed under the first decision of the President of UOKiK of 29 December 2006 was upheld. It involved a fine levied on 20 banks, including Bank BGŻ S.A. and Fortis Bank Polska S.A., for practices limiting competition by calculating interchange fees on Visa and MasterCard transactions in Poland in agreement.

The total fine levied on Bank BGŻ BNP Paribas S.A. (presently BNP Paribas Bank Polska S.A.) amounted to PLN 12.54 million and included: i) a fine for the practice of Bank Gospodarki Żywnościowej in the amount of PLN 9.65 million; and ii) a fine for the practice of Fortis Bank Polska S.A. (FBP) in the amount of PLN 2.89 million. The penalty was paid by the Bank on 19 October 2015. The Bank prepared a last resort appeal against the aforesaid court decision and brought it on 25 April 2016. On 25 October 2017, the Supreme Court overruled the judgment of the Court of Appeal and remitted the case. Acquisition of the core business of RBPL did not change the situation of the Bank as RBPL was not a party to this claim.

On 23 November 2020, the Court of Appeal quashed the judgment of the first instance court and remitted the case for re-examination.

Until 31 December 2021 the Bank received:

• 33 requests for settlement from companies (merchants), due to interchange fees paid in relation to the use of payment cards, (two from companies which submitted their requests twice and, one from the company which submitted its request three times and one from a company which submitted two requests for different payment methods). The total amount of these claims was PLN 1,028.02 million, including PLN 1,018.05 million where the Bank had joint responsibility with other banks.
• 4 requests for mediation before the PFSA. The requests were sent to the Bank by the same entrepreneurs who had previously submitted requests for a settlement attempt. The total value of claims arising from the above applications amounts to PLN 40.29 million, of which PLN 37.79 million relates to joint liability with other banks.

On 22 September 2020, the Bank received a decision of the President of the Office of Competition and Consumer Protection (UOKiK) No. DZOIK 14/2020, in which the President of UOKiK:

• found certain provisions of the standard contract (the so-called anti-spreading annex) concerning the principles of determining currency exchange rates illegal and prohibited their application;
• obligated the Bank to inform all customers who are parties to the annex about the decision and its consequences and to post information about the decision and its content on its website;
• imposed a fine on the Bank in the amount of PLN 26,626 thousand payable to the Financial Education Fund.

The Bank appealed against the decision within the statutory deadline. The Bank has established a provision for the above penalty in full amount. As of the date of the present report, a court date has not yet been set for this case.

More than a year after the judgment of the Court of Justice of the European Union in the CHF-indexed mortgage case (C-260/18), the number of lawsuits related to CHF mortgages against banks is gradually increasing. According to the Association of Polish Banks (ZBP), the number of pending lawsuits related to CHF loan agreements at the end of September 2021 reached almost 77 thousand compared to 39 thousand at the end of 2020. This resulted in a significant increase in provisions for these proceedings created in 2020 and in the third quarter of 2021 by banks having CHF mortgage loan portfolios. The amount of these provisions created by listed banks in 2020 amounted to approximately PLN 10 billion, while in the third quarter 2021 it was approximately PLN 3.68 billion contributing to the total value of provisions created for this purpose in the amount of PLN 11.7 billion at the end of 2020 and over PLN 14.55 billion at the end of the third quarter of 2021.

The gross balance sheet value of mortgage and housing loans granted to individual customers in CHF as of 31 December 2021 amounted to PLN 4.53 billion, compared to PLN 4.82 billion at the end of 2020.

As of 31 December 2021 the Bank was the defendant in 2,120 (1,505 new cases in 2021,350 of which in the fourth quarter of 2021, and 20 cases closed with final judgement) pending court proceedings (including validly closed cases, clients brought a total of 2,170 actions against the Bank), in which the Bank’s customers demanded the annulment of mortgage loan agreements regarding foreign currency loans or loans denominated in CHF, or declaration that the contract is permanently ineffective on the ground that it contains abusive clauses which cause the contract cannot be remained in force, or determining that the Bank granted a loan in PLN without denomination to foreign currency. The Bank is not a party to any collective claim regarding these loans. The total value of claims pursued in the currently pending cases as of 31 December  2021 was PLN 858.03 million (as of 31 December 2020 was PLN 217.82 million), and in legally binding cases PLN 41.36 million (34.96 million as of 31 December 2020).

The following judgments have been made in the 50 finalised proceedings to date: in 16 cases the claims against the Bank were dismissed, in 6 cases the proceedings were discontinued, in 3 of them due to the conclusion of a settlement agreement by the parties; in 1 case the court rejected the claim; in 26 cases the court found the agreement invalid, in 1 case only the claim under the low own contribution insurance was judged, in the remaining cases the court dismissed the claim.

The Bank creates provisions on an ongoing basis for pending litigation involving denominated or foreign currency loans, taking into account the current status of judgments in cases against the Bank and the developing line of case law.

The total amount of provisions created as at 31 December 2021 was PLN 1,290.4 million (as at 31 December 2020 it was PLN 200.3 million), with an impact on the Bank’s income statement of PLN 1,045.3 million (PLN 16.2 million in 2020).

In the fourth quarter of 2021, the balance of provisions made by the Bank for risks relating to CHF loans increased by PLN 613.8 million (in 2020 by PLN 168.2 million). The increase in the provision in the fourth quarter of 2021 was mainly due to an increase in the scale of legal uncertainty, an increase in the number of new lawsuits (new lawsuits in the fourth quarter of 2021 numbered 350, of which 214 related to denominated loans and 136 to foreign currency loans), an update of the assumptions and parameters of the model used by the Bank, through a more conservative estimation of them by, inter alia, increasing the expected number of lawsuits the Bank may receive over the next 4 years or extending the average time to complete the proceedings.

The provision is created in accordance with IAS 37 ‘Provisions, contingent liabilities and contingent assets’. Provision for pending cases is calculated on an individual basis, for future cases using the portfolio method. While calculating the provision, the Bank takes into account, inter alia, the number of certificates downloaded by clients for trial purposes, the estimated probability of clients filing cases, the estimated number of future claims, the number of claims filed, the probability of losing the case, and the Bank’s expected loss in the event of an unfavourable judgment. In addition, the Bank has included in its provisioning model the estimated number of settlements to be made with customers. The amount of the provision for estimated settlements was PLN 171.2 million from the total balance of provisions.

The Bank, in estimating the number of future cases and settlements with borrowers, assumed that approximately 39% of borrowers with active CHF loans have filed or will file a lawsuit against the Bank or will enter into a settlement with the Bank.

The Bank estimates the probability of losing a case based on historical judgments, separately for the foreign currency and denominated loan portfolios. Due to the observed volatility in case law, the Bank, when estimating the probability of an adverse judgment, takes into account judgments made after the CJEU judgment of 3 October 2019.

In estimating the loss in the event of a judgment declaring the loan invalid, the Bank assumes that the customer is obliged to return the principal paid without taking into account the remuneration for the use of the principal, the Bank is obliged to return the sum of the principal and interest instalments paid by the client using the historical rate and the Bank writes down the loan exposure.

Should the assumed average loss change by +/- 5%, with all other significant assumptions unchanged, the amount of the provision would change by +/- PLN 60 million.

The Bank conducted a sensitivity analysis of the model used to estimate the number of lawsuits lost. A change in this estimate would have the following impact on the estimated loss due to legal risk related to CHF loans.

The Bank conducted a sensitivity analysis of the model used to estimate the number of lawsuits lost. A change in this estimate would have the following impact on the estimated loss due to legal risk related to CHF loans.

Additionally, if 1% of customers with CHF loans filed a lawsuit against the Bank, the loss due to legal risk would increase by approx. PLN 33 million.

When calculating the expected loss on legal risk related to CHF loans, the Bank used simplifications resulting from the short horizon of available historical data and a relatively small number of cases ended with courts’ rulings. The Bank will monitor the number of collected certificates and the changing number of lawsuits, and will update the provision estimate accordingly.

At the same time, the Bank points to the fact that there is a significant discrepancy in both facts (in particular different contractual provisions and scope of information provided to the clients) as well as rulings passed in Poland regarding indexed, denominated and currency loans, which significantly impedes a precise estimation of risk. The Bank monitors the courts’ rulings on an ongoing basis and will adjust the level of reserves to the emerging case-law.

On 29 April 2021, the Court of Justice of the European Union handed down its judgment in case C-19/20, in which it confirmed, inter alia, that the aim of Directive 93/13 is not to invalidate all contracts containing provisions which are not permitted, and that preference should be given to legal solutions upholding contracts. At the same time the Bank pointed out that key issues such as whether a given clause is prohibited, the remedies available in the event that a clause is found to be abusive and the manner in which limitation periods are calculated are a matter of national law, and thus the need to analyse the above issues should arise in each individual case. The Bank will analyse the impact of the CJEU ruling on judgments of domestic courts on an ongoing basis and will take into account the changes in the case law in the calculation of provisions.

On 7 May 2021, the Civil Chamber of the Supreme Court in a composition of 7 judges issued a resolution having the force of law in the case ref. III CZP 6/21. In the ruling responding to a legal issue presented by the Financial Ombudsman, the Supreme Court indicated by reasoning the grounds that:

(1) the borrower may agree to the continued validity of terms which may be unfair, in which case they take effect from the date of conclusion of the contract,

(2) if the contract falls due to the unfair terms contained therein, each party has a claim for repayment of the performance made by that party (the so-called two-condition theory),

(3) the limitation period for the Bank’s claims for reimbursement of the principal begins to run only from the moment when the agreement has become definitively ineffective (the basis for the performance has been lost).

(4) the agreement becomes permanently ineffective from the moment when the borrower, having been informed of all the consequences of the failure of the agreement, including the possible specific negative consequences of such a failure, makes a declaration to not keep the agreement in force. The borrower should be informed of the consequences of the failure of the agreement by the court in the course of the proceedings.

On 10 June 2021, the Court of Justice of the European Union issued a summary judgment in Case C-198/20, which confirmed that consumer protection is available to any consumer and not only to the „reasonably well-informed and reasonably observant and circumspect average” recipient of the resolution.

The meeting of the full bench of the Civil Chamber of the Supreme Court, at which a resolution was to be adopted on the legal issues presented on 29 January 2021 by the First President of the Supreme Court, scheduled for 2 September 2021, was postponed without a date, following the Supreme Court’s formulation of preliminary questions to the CJEU. The preliminary questions are aimed to establish whether the Civil Chamber in its current composition can be regarded as an independent court and thus whether it has the capacity to pass a resolution on the legal questions posed at all.

The First President of the Supreme Court requested a resolution of the Civil Chamber on the following issues:

1. If it is concluded that a provision in an index-linked or denominated loan agreement, which relates to the method of determining the exchange rate of the foreign currency, constitutes an illicit contractual term and is not binding on the consumer, may it be assumed that that provision is replaced by another method of determining the exchange rate of the foreign currency which results from legal or customary rules?

If the answer to the above question is negative:

2. If it is not possible to establish a foreign currency exchange rate binding on the parties in a loan agreement indexed to such a currency, can the agreement be binding on the parties in its remaining scope?

3. If it is not possible to establish a foreign currency exchange rate in a loan agreement denominated in a foreign currency, can the parties remain bound by the agreement?

Irrespective of the answers to questions 1 to 3:

4. If a loan agreement is invalid or ineffective, and as a result of such agreement the Bank has disbursed to the borrower the whole or part of the amount of the loan and the borrower has made repayments on the loan, do separate claims for wrongful performance arise in favour of each of the parties, or does only one claim arise, equal to the difference in performance, in favour of the party whose total performance was higher?

5. If 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 amount paid under the loan start to run from the moment 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 the performance made under such agreement, may that party also claim remuneration for the use of its funds by the other party?

If the CJEU confirms the ability of the Civil Chamber of the Supreme Court to rule and the Supreme Court passes a resolution, the Bank will analyse the content of the resolution after its publication, including its impact on further case law and the value of the parameters used to determine the value of legal risk provisions. At this moment it is not possible to predict whether the resolution will be adopted and even more its impact on the provisions estimation. In determining the value of the provision, the Bank considers the whole information available at the date of signing the Financial Statements.

On 2 September 2021, the Court of Justice of the European Union handed down its judgment in Case C-932/19, in which it unequivocally indicated that national courts, when deciding on customers’ claims based on a challenge to certain contract terms, may not rely solely on the potentially favourable annulment of the contract for the consumer. It is not permissible for the situation of one of the parties to be regarded by the national courts as the decisive criterion as to the future fate of the contract. The Court reiterates that the fundamental objective of Directive 93/13 is to restore the balance of the parties, including by means of the national provisions in force.

On 18 November 2021, the Court of Justice of the European Union handed down its judgment in Case C-212/20, in which it indicated that the wording of an indexation clause in a credit agreement between a trader and a consumer must, on the basis of clear and comprehensible criteria, enable a sufficiently well-informed, reasonably observant and prudent consumer to understand how the exchange rate applicable to the calculation of instalments is determined, in such a way that the consumer is able at any time to calculate for himself the exchange rate applied by the trader.

As a consequence of the growing number of lawsuits and the value of provisions created by banks, in December 2020, the Chairman of the Polish Financial Supervision Authority – Jacek Jastrzębski – presented a proposal for a sectoral solution to the CHF loans problem. In simple terms, the Bank would treat a loan in CHF as if it had been granted in PLN and bears interest at the appropriate WIBOR rate plus a margin, which would be historically applied to this type of a loan.

Adopting such an approach would impose a very heavy burden on the sector, although its scale is difficult to estimate precisely at the moment. The costs would depend on a number of variables, such as the date the loan is granted, the exchange rate table of the specific bank, or the fee and commission policy.

The Management Board of the National Bank of Poland stated in its communication of 9 February 2021 that it may consider its possible involvement in the process of conversion of residential foreign-currency loans into PLN, on market terms and at market rates, provided that banks meet certain boundary conditions.

At the beginning of 2021, the Bank has joined a working group that is analysing the solution proposed by the Chairman of the PFSA. The cost estimate of a potential conversion in line with the assumptions of the PFSA Chairman’s proposal is PLN 1.6 billion assuming that the proposal covers the whole CHF loan portfolio (denominated and foreign currency loans). The change in the amount of the estimate in relation to the disclosure in the 2020 report is due to the change in the CHF/PLN exchange rate and the revision of the assumptions used in the calculation, and may also be subject to fluctuations in the future for the same reasons. The potential cost was estimated as the difference between the current balance sheet value of foreign currency or CHF-denominated loans and the balance sheet value of hypothetical PLN loans. The amount of the estimated cost of a potential conversion is not a component and does not affect the amount of risk provisions created by the Bank for CHF loans. At the moment of publication of the present Report, the Bank has not decided to offer settlements to customers in the form suggested by the Chairman of the PFSA.

The Bank has conducted a survey among its customers, which showed preliminary interest of customers in the settlements, and conducted a pilot campaign on offering settlements on terms individually agreed with borrowers.

In December 2021, the Bank completed a pilot campaign to propose settlements on terms individually offered and negotiated with borrowers, resulting in the conversion of a loan granted in a currency into a loan in Polish zloty and the cancellation of part of the loan balance or the complete cancellation of the loan. The Management Board positively assessed the results of the pilot and decided to expand the scope of these individual negotiations. The Bank took this parameter into account when creating the provision.

As at 25 February 2022 the Bank presented individual settlement proposals 1917 Customers and 373 Customers accepted the terms of the presented proposals.