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Aneta Wiewiórowska-Domagalska, How Does the Unfair Contract Terms Directive Penetrate National Legal Systems? – A Case Study Based on Mortgage-Secured Loans for Housing Purposes, Indexed or Denominated in CHF in Poland in:

OER Osteuropa Recht, page 54 - 74

OER, Volume 66 (2020), Issue 1, ISSN: 0030-6444, ISSN online: 0030-6444, https://doi.org/10.5771/0030-6444-2020-1-54

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Aneta Wiewiórowska-Domagalska* How Does the Unfair Contract Terms Directive Penetrate National Legal Systems? – A Case Study Based on Mortgage-Secured Loans for Housing Purposes, Indexed or Denominated in CHF in Poland Abstract The main aim of this article is to present the process of how the Unfair Contract Terms Directive was accepted into the Polish legal system. In order to do so, it first briefly explains, how the problem that allowed the massive testing of the Unfair Con‐ tract Terms Directive, i.e. the vast amount of consumer mortgage-secured loans for housing purposes, indexed or denominated in CHF (further: the CHF loans) came in‐ to existence in Poland. The story of the CHF loans also perfectly illustrates how the Polish legal system, which had taken a very liberal turn after 1989, struggles with the EU consumer protection concepts (which might also be representative for other coun‐ tries of young democracies). It shows how the lack of adequate reactions of the go‐ vernmental agencies led to burdening the judiciary system with the weight of the CHF loans problem, and how the Polish courts have not been sufficiently prepared for app‐ lying EU law. As an example, the article presents three issues that are at different sta‐ ges of development when it comes to the completeness of the dogmatic construction, and which vary, when it comes to the degree of their intertwining with EU law. Introduction – The Unfair Contract Terms Directive – 20 years later It has been 20 years since the Unfair Contract Terms Directive become part of the le‐ gal system in Poland. From the perspective of Polish private law, this is a particularly challenging piece of EU legislation, as its axiology (a departure from the assumption that the parties to private law relations are equal, and the positive obligation of the judge to correct the power imbalance between the parties) runs counter to the very li‐ beral foundations of Polish private law, reintroduced to the Polish legal system after 1989.1 It has, therefore, become a very attractive subject of dogmatic analysis. Howe‐ ver, the real impact that the Unfair Contract Terms Directive has on the Polish legal system could only be defined as a result of a massive testing of the directive’s appli‐ cation by the courts. Only by such a process can the scope of the directive and the depth of its penetration of the national system really be established. I. * Aneta Wiewiórowska-Domagalska, Dr. jur., Akademische Rätin a. Z., European Legal Studies Institute, Universität Osnabrück. 1 Aneta Wiewiórowska-Domagalska, Mateusz Grochowski, Consumer law in Poland: or There and Back Again, forthcoming. OER 1/2020, DOI: 10.5771/0030-6444-2020-1-54 The great career of CHF loans in Poland2 – The economic data While the market for mortgage-secured loans did not exist in Poland before the mid-90 s, they become popular among consumers only from the year 2000. The peak of popularity for CHF loans fell between 2006 and 2008, when as many as 476 000 contracts were concluded (192 100 in 2008 alone, which meant more than 760 a day).3 There were several reasons for that. First of all, CHF loans were much cheaper than loans in Polish zloty,4 which made the loan sum available to consumers substan‐ tially higher. It also meant that, for people with lower income, a CHF loan was some‐ times the only possible loan option. The opportunity to conclude a CHF loan coinci‐ ded with favourable economic factors. The increasing wealth of society, growing con‐ sumer optimism as well as rising demand for owning property for housing purposes, which had gone largely unanswered during communist times, resulted in an increased demand for housing loans. These reasons, combined with an aggressive marketing po‐ licy by the banks, led to almost 1 million CHF loans being concluded between 2005 and 2010.5 Their financial attractiveness came to an abrupt end when the Swiss Cen‐ tral Bank freed the CHF exchange rate at the beginning of 2015. As a result, the CHF/PLN exchange rate increased from 3.5455 to 4.3162 within 24 hours. In total, between 2007 and 2016, the average exchange rate CHF to PLN increased by 90.5 % (from 2.1614 to 4.1137), while in the same period, the exchange rate EUR to PLN increased by 23.5 %. As a result, the amount of instalments of the CHF loans increa‐ sed, along with the amount of debt owed to banks by consumers. From an economic point of view, this meant that, in some cases, after years of paying back a loan, the debt expressed in PLN that consumers still owed to banks was significantly higher that the value of the debt when concluding the contract.6 In addition, for many consu‐ mers it was impossible to pay the loan back after selling the property for which the loan was taken, because the value of the loan was higher than the value of the proper‐ ty (LTV factor >100 %). Between 2015–2016, this was the case for around 50 % of the CHF loans. In 2017, the situation improved: in banks with a portfolio of loans for housing purposes with a value exceeding PLN 100 million, that was the case for 20.1 % of CHF loans (which constituted 34.4 % value of all CHF loans), and in 2018 II. 2 In this part I am referring to the data collected for https://serwisy.gazetaprawna.pl/finanse-o sobiste/artykuly/1424985,rola-panstwa-w-kryzysie-frankowym.html. 3 Najwyższa Izba Kontroli, Informacja o wynikach, Ochrona praw konsumentów kor‐ zystających z kredytów objętych ryzykiem walutowym, KBF.430.001.2018, p. 34. 4 According to the data provided by the Association of Polish Banks, in 2005 the interest rate of a 30-year loan for housing purposes in the amount of PLN 250 000 was around 5.3 % if the loan was in PLN, 3.1 % in EUR and 1.8 % in CHF. That meant that the monthly installment was PLN 1400 for a loan in PLN, PLN 1100 for a loan in EUR and PLN 930 for a loan in CHF, see: Związek Banków Polskich, Biała Księga kredytów frankowych w Polsce, p.8. 5 Najwyższa Izba Kontroli, Informacja o wynikach, Ochrona praw konsumentów kor‐ zystających z kredytów objętych ryzykiem walutowym, KBF.430.001.2018, p. 9. 6 For example, after 10 years of paying the loan back, the initial PLN 260 000 increased to PLN 397 000, see: https://forsal.pl/artykuly/1268709,husiew-frankowicze-po-10-latach-splaty-zkredytu-260-tys-zl-zrobilo-sie-397-tys-to-rozboj-w-bialy-dzien-wywiad.html. How Does the Unfair Contract Terms Directive Penetrate National Legal Systems? 55 – 20 % of loans (34.3 % value). The LTV factor for the loans in PLN was 6.09 % in 2018.7 The lack of prevention and the lack of crisis management The reaction of the Polish government to the potential threats caused by CHF loans was clearly inadequate. Already in 2005, the General Inspector of the Banks’ Supervi‐ sion (Główny Inspektor Nadzoru Bankowego) recognised the risks that the massive market share of CHF loans may bring for the stability of the banking sector,8 as well as the improper practices of the banks that offered the CHF loans (liberal valuation, improper relation between the value of the property and the value of the loan),9 and the Association of Polish Banks (Związek Banków Polskich) requested a legislative prohibition on offering CHF loans10 for housing purposes, no law was introduced that would limit the number of such loans. At the same time, some of the banks that had requested the legislative ban on CHF loans in 2005 intensified their lending action in CHF in 2006.11 The Financial Supervision Authority (Komisja Nadzoru Finansowe‐ go) restricted its actions to issuing a number of non-binding recommendations regar‐ ding the management of exposure to mortgage-secured loans (recommendations S: 2006, 2008, 2011 and 2013), and good practices for retail loan exposure management (recommendations T: 2010 and 2013). While the recommendations gradually increa‐ sed the requirements for the banks, they were hardly adequate in certain respects.12 The recommendations were not binding and the banks did not observe them, as pro‐ ven by inspections carried out by the Supreme Audit Office.13 Moreover, the recom‐ III. 7 Najwyższa Izba Kontroli, Informacja o wynikach, Ochrona praw konsumentów kor‐ zystających z kredytów objętych ryzykiem walutowym, KBF.430.001.2018, p. 37–38. 8 Komisja Nadzoru Finansowego, Przypomnienie publicznej dyskusji o kredytach walu‐ towych, 10 marca 2015, p. 2–4. 9 Komisja Nadzoru Finansowego, Przypomnienie publicznej dyskusji o kredytach walu‐ towych, 10 marca 2015, p. 2. 10 Związek Banków Polskich, Biała Księga kredytów frankowych w Polsce, p. 33–34. 11 Not all Polish banks offered CHF loans. 12 Recommendation S (I) of 2006 and S(II) of 2008 suggested that the banks should present to consumers simulations of the installments that takes into account a 20 % change in the value of the currency of the loan within 12 months. The Supreme Audit Office presented an opinion that such a simulation did not properly reflect the scale of risks for loan contracts concluded for considerably long periods, sometimes exceeding 30 years. Moreover, in 2008 there was not a single currency of the OECD countries for which the changes in the country’s currency against CHF during the previous 30 years (or less, if the currency had not existed that long) would be lower than 25 %. Only seven countries had changes lower than 70 % (which included four countries with a currency younger than 30 years); for 28 out of 35 countries, the changes exceeded 70 %, and for 20 it was 150 %. PLN has lost 400 % against CHF since 1990 (so 20 times more than the Recommendations suggested). If an entire 30-year period was considered, PLN would have lost more than 1.1 million % (see: Najwyższa Izba Kontroli, Informacja o wynikach, Ochrona praw konsumentów korzystających z kredytów objętych ryzykiem walutowym, KBF.430.001.2018, p.57). 13 Between January 2008 and June 2017, the UKNF conducted 104 inspections with the aim of checking how the banks implement the Recommendations. The Supreme Audit Office looked 56 Aneta Wiewiórowska-Domagalska mendations that the Financial Supervision Authority could issue after inspections, would not apply to contracts already concluded, but only to future ones. There were several attempts to deal with the problems caused by CHF loans by means of legislation, but they never targeted CHF loans in particular. In 2011 (before the rapid increase in the value of CHF), an act was adopted that aimed to resolve the problem of spreads.14 It allowed those debtors who concluded loans indexed or deno‐ minated in a currency other than PLN to pay the loan back directly in that currency, to avoid the consequences of unfair contract terms that dealt with the process of recalcu‐ lating the payments. In 2015, an act supporting debtors in a difficult financial situati‐ on15 established the Debtors Support Fund (PLN 600 million in bank contributions) for people in an extremely difficult financial situation. However, the criteria that made the debtors eligible for interest-free repayable assistance, were exceptionally difficult to meet, and the banks were not really interested in distributing the funds (if not used by 2018, the banks’ contributions were to be returned). As a result, according to the available data,16 only 833 people were able to use the fund. In 2019, the act was chan‐ ged to extend the functioning of the Fund and to relax the requirements that allowed it to be used.17 Rescued by the court? In such circumstances, consumers who concluded CHF loans began to re-evaluate the content of the contracts in light of the unfairness of its terms, and subsequently started to initiate claims against banks in courts (the alternative dispute resolution did not work).18 In 2017, there were cases pending regarding around 6 900 CFH loan con‐ tracts (more than half of those claims – 5653 were claims against two banks).19 In IV. at 16 inspections conducted between 2008 and 2016 in seven banks that were heavily engaged in CHF loans. In every inspected bank, the Supreme Audit Office established that Recom‐ mendation S was implemented incorrectly or incompletely (see: Najwyższa Izba Kontroli, Informacja o wynikach, Ochrona praw konsumentów korzystających z kredytów objętych ryzykiem walutowym, KBF.430.001.2018, p. 63). 14 Act on Amending the Banking law and Certain Other Acts of 29 July 2011, Journal of Laws no 165, item 984. 15 Act on Support of Debtors who Concluded a Loan Contract for Housing Purposes and are in a Difficult Financial Situation of 9 October 2015, Journal of Laws 2015, item 1925. 16 https://www.zadluzenia.com/artykul/tylko-838-osob-skorzystalo-ze-wsparcia-dla-zadluzon ych/. 17 Act on Support of Debtors who Concluded a Loan Contract for Housing Purposes and are in a Difficult Financial Situation, of 4 July 2019 Journal of Laws 2019, item 1358. 18 Between January 2016 and 30 September 2017, the Financial Ombudsman (which has competence in this regard) conducted 864 out-of-court proceedings, of which only six were successfully concluded, see: Najwyższa Izba Kontroli, Informacja o wynikach, Ochrona praw konsumentów korzystających z kredytów objętych ryzykiem walutowym, KBF.430.001.2018, p. 94. 19 Najwyższa Izba Kontroli, Informacja o wynikach, Ochrona praw konsumentów kor‐ zystających z kredytów objętych ryzykiem walutowym, KBF.430.001.2018, p. 81. How Does the Unfair Contract Terms Directive Penetrate National Legal Systems? 57 2019 there were 11 563 claims initiated against banks in relation to CHF loans.20 The increase in the number of cases continues in 2020.21 Initially, a majority of cases were decided for the banks, very often in glaring vio‐ lation of the Unfair Contract Terms Directive, but at a certain moment the trend chan‐ ged in favour of consumers. The available data varies, but the tendency is clear. Ac‐ cording to some sources, while in 2016 74.04 % of cases were decided against consu‐ mers, in 2019 consumers won 87.5 % of cases.22 Another source indicated eight cases lost for consumers in the first instance and one in the second in 2016; 101 won and 2 lost (the first instance), 31 won, 11 lost (the second instance) in 2020.23 From this per‐ spective, the CJEU judgement of 3 October 2019, C-260/18 Dziubak was very im‐ portant. While it does not constitute any breakthrough when it comes to the line of argumentation, it was the first judgement of the CJEU that referred directly to the Polish CHF loans problem and had a huge psychological impact on Polish judges and consumers alike. The very unpredictable position of the Polish Supreme Court, often in violation of EU law, created a difficult situation for the lower instance courts. The Dziubak judgement reassured the judges with regards to the possibility (and the obli‐ gations) arising from EU law, and the consumers with regards to the conviction that it is worth pursuing one’s rights in court. The unstable position of the Supreme Court24 For a considerably long time, the Polish Supreme Court experienced problems with accepting the EU solutions introduced by the Unfair Contract Terms Directive. The Supreme Court’s judgements that infringed EU law had an impact on both the banks, which could expect protection of their interest with a violation of EU law, as well as the lower instance courts, which suddenly faced the alternative: adjudicating in accor‐ dance with the CJEU or in accordance with the Supreme Court. The position of the Supreme Court in the Polish legal system changed after Po‐ land’s accession to the European Union. While the proper functioning of EU law is based on the system of cooperation between national courts and the CJEU, the bin‐ ding interpretation of EU law is the remit of the CJEU. Therefore, all the national courts have a right,25 and the Supreme Court has an obligation26 to refer preliminary 20 https://drive.google.com/file/d/15vi-EvyRSerxoUIJ_uuCnxXEDKlB_n1V/view?fbclid=Iw AR12lIGMWsZ3WRVzONP2rrM1fqq6Bi35rOGVt11h0486qz53jtyNCw1GdqM. 21 https://serwisy.gazetaprawna.pl/finanse-osobiste/artykuly/1449712,rzecznik-finansowy-wni osek-sprawy-frankowe-istotny-poglad.html. 22 http://pomocfrankowiczom.pl/?p=1206. 23 https://nawigator.bankowebezprawie.pl/statystyki/. 24 This fragment of the article is partly based on: A. Wiewiórowska-Domagalska, https://www .rp.pl/Nieruchomosci/303249974-Sprawy-frankowe-wymagaja-ugruntowanego-stanowiska .html. 25 Judgements of 16 January 1974, Rheinmühlen-Düsseldorf, 166/73, paragraph 3; of 16 December 2008, Cartesio C‑210/06, pkt 88); of 22 June 2010, Melki i Abdeli, C‑188/10 and C‑189/10, paragraph 41; and of 5 April 2016, PFE C‑689/13, paragraph 32. 26 Judgements of 6 October 1982, Cilfit et al. 283/81, paragraph 21; of 27 June 1991, Mecan‐ arte C‑348/89, paragraph 42); of 5 April 2016, PFE C‑689/13, paragraph 32. 58 Aneta Wiewiórowska-Domagalska questions to the CJEU. If the questions relate to the interpretation of EU law, the CJEU is obliged to answer.27 If one looks at this in traditional Kelsenian categories, the Supreme Court has lost certain competences as a result of Poland joining the EU, i.e. it is no longer the final instance in some categories of cases. These are, however, obviously incorrect evaluation criteria for a multi-layered legal system, as the Supre‐ me Court could not lose powers that it never had, i.e. the power to interpret EU law. At the same time, the powers of the Supreme Court as the court responsible for the coherence and stability of the national case law have gained a new dimension, i.e. as‐ suring that the Polish courts understand and apply EU law properly. Considering how deep the differences are between Polish and EU private law, this is an enormous and extremely difficult task. The Supreme Court is equipped with instruments that allow this task to be fulfilled effectively, in particular through resolutions of seven judges. The tools at its disposal allow the introduction of EU law into the national case law to be orchestrated correctly and relatively smoothly, by explaining the limits of operati‐ on of EU law within the national law, along with the principles of interaction between EU and national laws, as well as the EU-friendly interpretation of national law. The Supreme Court therefore has a double-edged task: to champion the EU law and at the same time to guard the cohesion of national case law. Unfortunately, for quite some time the Polish Supreme Court had problems with establishing itself in the new position, as a part of the multi-layered legal system. Its actions were characteristic for a court that adjudicates as the final instance, without considering the position of the CJEU. While the recent judgements of the Supreme Court clearly show that its position is evolving into the direction of observing EU law, the case line is not well established yet. Some of the previous mistakes of the Supre‐ me Court have not been properly corrected, and the Supreme Court has not establis‐ hed its position regarding certain important issues (see point: The examples on that). Long is the way: the struggles to accept the Unfair Contract Terms Directive in Poland The problem with accepting the Unfair Contract Terms Directive in the Polish legal system is primarily based on the fact that the directive stands in stark contradiction with the fundamental beliefs regarding the best way for organising the market. Polish lawyers (including judges) have a very strongly embodied belief in the omnipotent power of the market. The roots of this conviction go back to socialist times, when the inadequate consumer protection was explained by the inefficiency of the centrally controlled market. The free market was seen as the universal remedy. The “economic miracle” that took place in Poland after 1989 convinced mainstream lawyers that it is possible for the market to self-regulate at the appropriate level. From a legal perspec‐ tive, this approach is embodied in principles like: pacta sunt servanda, caveat emptor or even favor contractus (which is also a relic from socialist times, when preserving a 27 Judgements of 18 October 1990, Dzodzi, C‑297/88 and C‑197/89, paragraph 35; of 15 December 1995, Bosman, C‑415/93, paragraph 59; of 22 November 2005, Mangold, C‑144/04, paragraph 35; and of 6 March 2018, SEGRO and Horváth C‑52/16 and C‑113/16, paragraph 42. How Does the Unfair Contract Terms Directive Penetrate National Legal Systems? 59 contract was in the best interest of the consumer).28 It assumes that every participant of the market (which includes consumers) is able to sufficiently protect its interests. Should one fail to achieve that, it is due to one’s decision to pursue inefficient actions or to abstain from taking them,29 and not due to the market structure. Consequently, it is only natural that banks should be able to benefit from their business activities and should be able to approach consumers as equal business partners. What follows, the Unfair Contract Terms Directive, which assumes a structural lack of balance between various groups of the market players, was a rather horrifying novelty to most Polish lawyers. Likewise, the judges, as a group that constitutes the emanation of society, ad‐ hered to society’s views, praising the free market processes. It is therefore easy to un‐ derstand why EU law, with its substantially different approach and different methodo‐ logy, caused resistance of the courts. However, considering how dynamic the deve‐ lopment of the EU case-line on the basis of the Unfair Contract Terms Directive is, if a member state wants to be able to accept the ever-changing developments, the struc‐ ture and the axiology of national law must allow for the smooth accommodation of EU concepts. The alternative is that the legal system makes (sometimes deep) adjust‐ ments with almost each and every new CJEU case. The examples This part discusses three examples: (1) the consequences of establishing the unfair‐ ness of the term, (2) the problem of the informational duties of the court towards con‐ sumers during the unfairness assessment process, and (3) the problem of settling the parties’ performances. While the first one, covered by the Unfair Contract Terms Di‐ rective, seemed like it had already been well settled in EU law, a recent question from the Polish court shows that it is still not settled in Poland. This is also the issue that conceptually caused the greatest problems for the Polish Supreme Court and had a far-reaching impact on the unsettled position of the lower instance courts. The con‐ cept of the informational duties has been developed in the CJEU cases, in relation to consumer participation in the process of unfairness control. While it has been present in EU law for quite some time, there are still many areas that have not been addres‐ sed, which makes their practical application at the national level rather problematic. The settlement of the performances of the parties (in particular after annulling the contract), belongs, in principle, to the national competences. However, the application of national law cannot negatively impact the effectiveness of EU law. 28 See: Przemysław Mikłaszewicz, in: Kodeks cywilny. Komentarz (ed. K. Osajda), CH Beck, Warszawa 2019, comments to Article 3851, Nb. 55. 29 On that, see also Aneta Wiewiórowska-Domagalska, Mateusz Grochowski, Consumer law in Poland: or There and Back Again, forthcoming. 60 Aneta Wiewiórowska-Domagalska The consequences of unfairness – The consequences of establishing unfairness for the term itself The position of the CJEU regarding the consequences of unfairness of the term is ra‐ ther well established, as clarified in the judgement of 14 June 2012, C-618/10 Banco Español. This judgement stresses (paragraph 62) that, while the Member States have a certain degree of autonomy on the basis of Article 6(1) of the Unfair Contract Terms Directive regarding the definition of the legal arrangements applicable to unfair terms, Article 6(1) expressly requires such terms to be not binding on consumers. It means that national courts are obliged, when finding that contract terms are unfair, to draw all the consequences that follow under national law, to make sure that the consumer will not be bound by those terms (see Asturcom Telecomunicaciones, paragraph 58; order in case C-76/10 Pohotovosť, paragraph 62; Pereničová and Perenič, paragraph 30; Banco Español, paragraph 63). Article 6(1) is mandatory and aims to replace the formal balance that the contract establishes between the rights and obligations of the parties with an effective balance that re-establishes equality between them. National courts are required to exclude the application of an unfair contractual term and are not authorised to revise its content on the basis of Article 6(1) (Banco Español, paragraph 65). The CJEU takes the position that if the national courts would be able to revise the content of unfair terms, the long-term preventive power of the sanction imposed on the basis of Article 7(1) of the Unfair Contract Terms Directive would be compromi‐ sed. The possibility to revise the content of the term would contribute to eliminating the dissuasive effect on sellers or suppliers of the straightforward non-application of the unfair terms with regard to the consumer (see: case C-473/00 Cofidis, paragraph 32, Mostaza Claro, paragraph 27; order in case C-76/10 Pohotovost’, paragraph 41; judgement of 21 January 2015 in joined cases C-482/13, C-484/13, C-485/13 and C-487/13, Unicaja Banco, paragraph 31). The sellers or suppliers would otherwise re‐ main tempted to use those terms in the knowledge that, even if they were declared invalid, the contract could nevertheless be modified, as far as necessary, by the natio‐ nal court in such a way as to safeguard the interest of those sellers or suppliers (Banco Español, paragraph 69, Kasler, paragraph 79). For the Supreme Court, the ideas of the CJEU proved to be too radical for a sur‐ prisingly long time. The first judgement in which the Supreme Court decided to open‐ ly follow its own path was the judgement of 14 May 2015 (II CSK 768/14). It was a cassation case, decided in group proceedings involving 1247 consumers, which the consumers won in the I and II instance. The Supreme Court decided that the unfair contract term should be divided into a part that deals with establishing the interest rate (the parametric / economic element) and the bank decision / competence element, ac‐ cording to which the bank may change the interest rate in specific situations. Further, the Court took a view that finding only one part of the clause unfair allows the para‐ metric element to remain in force. The Court listed possible parameters for changing the interest rate and requested the court adjudicating the case after cassation to call upon an expert witness to evaluate whether the method used by the bank to calculate the payments was based on rational factors that were economically justified and pos‐ sible to verify properly. This judgement had a very negative impact on the market. Basically, it convinced the banks that it is possible not to apply EU law in Poland, to How Does the Unfair Contract Terms Directive Penetrate National Legal Systems? 61 the benefit of the banks. This stiffened the negotiating position of the banks, now even more unwilling to settle with consumers in out-of-court proceedings. This case became a landmark for Poland. The Supreme Court established a line of argumentati‐ on that allowed only very insignificant changes in the content of the contract as a re‐ sult of finding a term unfair, introducing the element of the banks’ interest into the equation. The Supreme Court argued that changing a variable interest rate into a fixed interest rate (which could also be found in the contract) would lead to an unjustified change in the character of the contract, as it would introduce a new element, i.e. a fi‐ xed interest rate. The Court claimed that such an extensive interpretation of Article 3851 of the Civil Code (which transposes Articles 3(1), 4(2) and 6(1) of the Unfair Contract Terms Directive) cannot be justified even when assuming its remarkably consumer-friendly aim. The Supreme Court also stressed that, when evaluating the practice of the bank, the expert witness should take into consideration the transactio‐ nal profitability of the bank. The proceedings in this case have lasted almost ten years already (five years after the cassation). When the judgement was made, it violated the Banco Español case (to which it, interestingly, never referred to), but at the moment it is also contrary to the judgement C-260/18 in the Dziubak case, because the Supreme Court ordered that the loan contract be supplemented on the basis of Article 354 of the Polish Civil Code, which the CJEU expressly rejected as the basis of the contract supplementation in the Dziubak case. The decision of the district court is expected shortly, and at the time of finalising this article, the Polish Ombudsman is in the process of joining the case. In judgements issued later on, the Supreme Court accepted that courts may only set the unfair contract term aside, to confirm that it is not binding on consumers, but is not entitled to change the content of the clause.30 In doing so, the Court was faith‐ fully following the reasoning of the CJEU. Nevertheless, the conceptual foundation on which judgement II CSK 768/14 is based, i.e. that the courts should safeguard the transaction profitability of the bank’s commercial activity, while in stark contradiction with EU law, still echoes in some judgements of the Supreme Court. The fact that EU concepts regarding the concepts behind unfairness control are still not well establis‐ hed in Poland is demonstrated by a question that was recently referred to the CJEU by a district court in Gdańsk (C-19/20 Bank BPH).31 The court inquired whether the Un‐ fair Contract Terms Directive32 allows the court to take a contract term in which the bank establishes the exchange rate of the currency in which the consumer loan is in‐ dexed, and delete the unfair formulation that refers to establishing the margin of the bank (which constitutes a part of the exchange rate) unilaterally and in unclear man‐ ner, and to keep the unequivocal part of the term that refers to the average exchange rate of the Polish National Bank. In the view of the court, this would not create a need to supplement the contract with any provision of law, while at the same time, it would lead to re-establishing the real balance between the consumer and the bank, and it would change the content of the term to the consumer’s benefit. 30 See for example: judgements of 24 October 2018 (II CSK 632/17), of 4 April 2019 (III CSK 159/17) and of 9 May 2019 (I CSK 242/18). 31 Referral to the CJEU, made on 30 December 2019 in case XV C 485/18. 32 Article 6(1) in relation to Article 3(1) and (2) sentence 2 and Article 2. 62 Aneta Wiewiórowska-Domagalska This question very well illustrates firstly, how complicated the process of unfair‐ ness control, created by the Unfair Contract Terms Directive is, and secondly that it is not yet fully understood by the Polish courts. This question has not yet been answered by the CJEU, but some preliminary remarks concerning the Polish court’s reasoning can already be made. The referring court in fact aims to clarify, whether the court may eliminate from a contract term one part of a term that is not transparent, while allo‐ wing the transparent part of the term to continue to exist in the contract. The indexing clause, according to the well-established case-line of the CJEU (judgement of 20 Sep‐ tember 2018, OTP Bank and OTP Faktoring, C-51/17, paragraph 68 and the case-law cited, judgement of 14 March 2019, Dunai, C-118/17, paragraphs 48 and 52; Dziubak, paragraph 44) refers to the main subject matter of the contract. That means that, ac‐ cording to Article 4(2) of the Unfair Contract Terms Directive, the clause is subject to unfairness control only if it is not transparent. It is rather obvious that the clause under review does not meet the transparency standards established by the CJEU. The Court of Justice requires not only that the clause must be transparent in the formal under‐ standing of the term, but also that the consumer should be able to understand the eco‐ nomic consequences of concluding such a contract, especially if the consumer conclu‐ des the loan contract in a currency other than the one in which the consumer receives his income (judgement of 20 September 2017, C-186/16 Andriciuc, paragraph 50). If the clause referring to the main subject matter of the contract is not transparent, the clause is subject to the unfairness control. The unfairness of the clause under review manifests itself in two aspects. First, the clause imposes on the consumer the entirety of the risk relating to changes in the CHF/PLN exchange rate, and the contract does not provide the consumer with any mechanism that would allow the consumer to miti‐ gate the exchange risks. Second, the clause gives the bank the possibility to unilateral‐ ly establish the margin of the bank. Once a contract term is found to be unfair, the court is obliged merely to set the term aside (Asturcom Telecomunicaciones, paragraph 58; order in case C-76/10 Poho‐ tovosť, paragraph 62; Pereničová and Perenič, paragraph 30; Banco Español, para‐ graph 63) unless the consumer requests that the system of protection not be applied (judgement of 21 February 2013, Banif Plus Bank, C-472/11, paragraphs 23, 27 and 35 and of 4 June 2009; Pannon GSM, C-243/08, paragraphs 33 and 35). In other words, the only possibility for an unfair contract clause to continue to be binding is when the consumer requests it. Eliminating the second part of the clause (dealing with the bank’s margin), would only eliminate one aspect of the unfairness of the term (the arbitrary decision of the bank), while the unfair distribution of the risk would remain in the contract. Having such a term in the contract would be acceptable only if the clause that deals with the main subject matter of the contract would be transparent ab initio, so there would be no obligation to perform the unfairness control, or if the con‐ sumer would request it at a later stage. However, once the unfairness control is under‐ taken, the found unfairness must be eliminated by setting the term aside, or (in certain situations) by replacing the term with a specific type of national law provision (judge‐ ments of 30 April 2014, Kásler and Káslerné Rábai, C-26/13, paragraph 81; of 26 March 2019, Abanca Corporación Bancaria and Bankia, C-70/17 and C‑179/17, paragraph 59; Dziubak, paragraph 59). How Does the Unfair Contract Terms Directive Penetrate National Legal Systems? 63 What the Polish court is asking about is, in fact, not whether the court is allowed to undertake the unfairness control of a non-transparent term that deals with the main subject matter of the contract, but whether the court is able to eliminate the lack of transparency of the term by removing one part of the term. This is clearly in contra‐ diction with the wording and the aim of Article 4(2) of the Unfair Contract Terms Di‐ rective. In addition, allowing the blue pencil test to remove the lack of transparency of the main subject matter of the contract, and avoiding the unfairness control of such a term would also be in contradiction with the aim of Article 7(1) of the Unfair Con‐ tract Terms Directive and the well-established case line of the Court, which prohibits the reduction upholding the effectiveness of the term. Traders would be encouraged to use unfair contract terms lacking transparency, knowing that the court will eliminate the lack of transparency by dividing the term, and there will be no danger of the un‐ fairness control. The traders would simply construct terms of their contracts in a way that would allow the courts to safely divide the terms in two, in order to uphold the term as such. The consequences of a clause’s unfairness for the entire contract The CJEU’s position is also rather clear regarding the consequences of finding a term unfair for a contract. As explained in Banco Español (paragraph 65), a contract must continue in existence, in principle, without any amendment other than that resulting from the deleting the unfair terms, in so far as, in accordance with the rules of do‐ mestic law, the continuity of the contract is legally possible. The court must therefore assess whether the contract may continue without the unfair contract term. Article 6(1), along with the principle of legal certainty of the economic activities, demand that the assessment be based on objective criteria, which means that the situation of one of the parties cannot be regarded as the decisive criterion (Pereničová and Pere‐ nič, paragraph 32). However, considering that harmonisation introduced by the Unfair Contract Terms Directive is partial and minimal Member States may introduce mea‐ sures giving consumers a higher level of protection (Pereničová and Perenič, para‐ graph 34), i.e. the Member States may allow the contract to be annulled if it serves the consumer. The CJEU introduced an exception to this rule in the Kásler and Káslerné Rábai judgement (paragraphs 83 and 85), which stated that, if annulling the contract would expose the consumer to particularly unfavourable consequences, so that the dissuasive effect resulting from the annulment of the contract could well be jeopardi‐ zed, then national courts are allowed to cure the invalidity of the term by substituting for it a supplementary provision of national law, or a provision of legislation that is applicable where the parties to the contract so agree (Abanca, paragraph 59). In the Dziubak judgement (paragraph 59), the CJEU clarified that this exception is based, in particular, on the grounds that such provisions are presumed not to contain unfair terms and are meant to reflect the balance that the legislature intended to establish be‐ tween all the rights and obligations of the parties to certain contracts in cases where the parties have not departed from a standard rule provided for by the national legisla‐ ture in relation to the contracts concerned, or indeed have expressly opted for a rule introduced by the national legislature to that end to be applicable (paragraph 60). 64 Aneta Wiewiórowska-Domagalska What follows, national provisions providing that the effects expressed in a legal tran‐ saction are to be supplemented, among other things by the effects arising from the principle of equity or from established customs, do not appear to have been a subject of such an assessment by the legislature (Dziubak, paragraph 61), and therefore can‐ not be used to supplement the contract (Dziubak, paragraph 62). Establishing the position of the Supreme Court regarding the consequences of fin‐ ding a clause unfair for the entire contract was a long process that has probably not yet come to an end. First, the Supreme Court attempted to introduce the possibility of supplementing the contract in situations other than as defined by the CJEU. In the first relevant case (the judgement of 14 July 2017 (II CSK 803/16)), where the Supre‐ me Court declared that it was going to apply EU law, despite the lack of such a duty (the contract under consideration was concluded before Poland joined the EU), it in‐ fringed solutions accepted by the EU. In this case, the Supreme Court expressis verbis accepted the position of the CJEU regarding the consequences of unfairness for the term itself, and extensively referred to EU case law. At the same time, it introduced far-reaching modifications to the reasoning of the CJEU when it comes to establishing the consequences of finding a term unfair for the entire contract. The Supreme Court stressed that the CJEU excluded not only the reduction upholding the effectiveness of the term, but also the possibility of filling in the lacunas that appear in the contract after deleting the unfair contract term. However, it took a view that the CJEU establis‐ hed its position on the basis of cases that dealt with terms of this nature, that deleting them from the contract would not create important lacunas: contractual penalties, inte‐ rest on default, or when the outstanding balance of the loan becomes due forthwith, in the case of a payment delay. The Supreme Court followed that in a case that dealt with a spread clause (Kásler, paragraph 80 et seq., judgement of 21 January 2015 Unicaja Banco in joined cases C-482/13, C-484/13, C-485/13 and C-487/13, para‐ graph 33) the CJEU adopted a more flexible approach and allowed the contract to be filled with a supplementary provision of national law (if the annulment of the contract would cause a consumer particularly unfavourable consequences). Therefore, the Su‐ preme Court, “directed by the reasons underlying the recalled case law of the CJEU” decided the gaps in the contract to be filled “also in other situations, when they endan‐ ger consumer interests, also when there is no possibility to directly apply an appro‐ priate supplementary provision.” The Supreme Court argued that consumers cannot be forced to choose between two solutions, both of which are, ex definitione, disad‐ vantageous to the consumer, i.e. “allowing the disadvantageous term in the contract or subsequent acceptance of the disadvantageous term.” Interestingly, the Supreme Court did not comment on paragraph 34 of the Unicaja Banco case, in which the CJEU observed that the referring court must make checks whether the annulment of the contractual clauses at issue could have adverse consequences for the consumer. The Supreme Court allowed the gaps in the contract to be filled in situations other than indicated by the CJEU, and without verifying whether or not the contract may continue to exist after finding the term unfair.33 Moreover, the Supreme Court allowed 33 That led Mikłaszewicz to describe the references to the CJEU case-law as “decorum”. See: Przemysław Mikłaszewicz, in Kodeks cywilny. Komentarz (ed. K. Osajda), CH Beck, Warszawa 2019, comments to Article 3851, Nb. 56. How Does the Unfair Contract Terms Directive Penetrate National Legal Systems? 65 the per analogiam application of Article 41 of the bill of exchange law, according to which if a bill of exchange is issued in currency that is not the currency of the place of payment, the amount of the bill of exchange may be paid in the national currency ac‐ cording to its value on the day of payment. This leads to the application of the avera‐ ge exchange rate of the Polish National Bank. As emphasised in the judgement, in this case the Supreme Court could not refer to the CJEU. However, the reasoning presented by the Supreme Court, violating EU law, resonated in subsequent decisions of the Supreme Court where EU law was clearly applicable, and the Court had an obligation to refer to the CJEU. In the judgement of 27 February 2019 (II CSK 19/18), the Supreme Court also accepted the possibility of filling in the gaps in the contract, contrary to the position of the CJEU. Referring to the judgement of 14 July 2017, the Supreme Court decided that Article 358 § 2 of the Civil Code (establishing the value of a foreign currency according to the average ex‐ change rate of the Polish National Bank, for the day when the performance becomes due) can be used to supplement the contract. In this case, the Supreme Court also ob‐ served, in accordance with the spirit of EU law, that one should not draw far-reaching consequences from the statement of consumers contained in the loan contract that they are aware of the exchange risks. The market reality proved that even an estimati‐ on of the risk scale related to the loans in foreign currency, in particular when it co‐ mes to the scale of CHF value changes, was deeply deceptive and incorrect. The Supreme Court adopted its position in accordance with the CJEU in judge‐ ments of 24 October 2018 (II CSK 632/17), of 4 April 2019 (III CSK 159/17) and of 9 May 2019 (I CSK 242/18).34 Here, referring to the preventive character of the sanc‐ tion introduced by the Unfair Contract Terms Directive, the Supreme Court allowed filling in the gaps in the contract that appeared after finding a term unfair only on ex‐ ceptional occasions. According to the two latter judgements, deleting an unfair index‐ ing clause does not lead to the invalidity of the entire contract and does not require the unfair contract term to be replaced, because the loan contract can continue to exist without the indexing clause. As a result of this approach, a loan contract indexed in CHF changes into a loan in PLN, but the interest rate is based on LIBOR (like in the CHF loans), which means that the loan becomes much cheaper for the consumer. The Supreme Court acknowledged that the parties would probably not have agreed to an interest rate for a loan contract in PLN being based on LIBOR, but emphasised that it does not matter if the content of the loan contract is established as a result of using unfair terms by the trader. The Supreme Court also took a position that replacing the unfair terms with terms that refer to the average exchange rate of the Polish National Bank is against the preventive aim of the Unfair Contract Terms Directive, because it convinces the banks that the courts would correct unfair contract terms in a way that takes the interest of the banks into consideration as far as possible. 34 These judgements have been given by judges approved by the new Judiciary Council [Krajowa Rada Sądownictwa], so until the resolution of the Supreme Court of 23 January 2020 (BSA I-4110–1/20) that followed the CJEU judgement of 19 November 2019 A.K. v Krajowa Rada Sądownictwa in joined cases C-585/18, C-624/18 and C-625/18, the status of the judgements issued by those judges was unclear. The resolution of 23 January 2020 clarified that the judgements already passed are – in principle – valid (point 3 of the resolution). 66 Aneta Wiewiórowska-Domagalska The Supreme Court employed a similar reasoning (no need to invalidate the entire contract; the possibility to keep the LIBOR based interest rate after deleting the inte‐ rest rate clause from the contract) in the judgement of 29 October 2019 (IV CSK 309/18). The Supreme Court stressed that, if the meaning of the fluctuations in the exchange rate and risks related to it were properly explained, a rational debtor would never have decided on it, and the bank would never have offered loans connected with the foreign currency exchange rate, because it would understand that such a con‐ tract could easily be considered unfair. Unfortunately, the Supreme Court also refer‐ red to criteria that violate EU law, by declaring that the solution proposed by the court should take into consideration interest of the both parties (which includes the justified interest of the bank). According to the Supreme Court, the judgement should weigh the interest of both parties and reflect a sense of justice. The Supreme Court commit‐ ted a similar violation of EU law in the resolution of 18 September 2019 (V CSK 152/19). Not only did the Supreme Court refer again to the possibility of filling in the contract, contrary to EU law, it also deliberated on the economic profitability of the loans denominated in CHF, and the possibilities to modify the content of the contract, which is rejected by EU law. Moreover, the Supreme Court recalled arguments put forward by bank lobbyists whereby applying the sanction that EU law requires would place the consumers who concluded the CHF loan in a privileged position, as compa‐ red to the consumers who concluded loans in PLN. In a very recent judgement of 27 November 2019 (II CSK 483/18), the Supreme Court presents the position that, again, it is in accordance with EU law concerning the options that national courts have when it comes to supplementing contracts. The Su‐ preme Court takes the view that a loan contract indexed in CHF may continue to exist after eliminating the indexing clause, as a PLN loan with the interest rate based on LIBOR. In addition, it gives the lower instance courts instructions on how to verify whether the loan contract may continue to exist. The Supreme Court openly speaks against the possibility of replacing the unfair term with the average exchange rate of the Polish National Bank and rightly argues that ensuring the bank’s profitability is of secondary importance when compared to the preventive character of EU sanctions, according to which the unfair contract term is not binding. The informational duties of the court in the process of unfairness control In cases dealing with the Unfair Contract Terms Directive, the CJEU has traditionally relied heavily on one of the foundations of EU contract law, i.e. the right of the consu‐ mer to make an informed decision. The information duty, which the CJEU imposes on courts, refers to several aspects of the protection embedded in the Unfair Contract Terms Directive. In the Dziubak case (paragraph 54), the CJEU makes it perfectly cle‐ ar that the Unfair Contract Terms Directive “does not go as far as” making the system of protection introduced for the benefit of consumers mandatory. What follows is that, if the consumer prefers not to rely on it, then that system of protection is not applied. However, the consent of the consumer to reject the protection offered by the Unfair Contract Terms Directive must be free and informed. How Does the Unfair Contract Terms Directive Penetrate National Legal Systems? 67 So far, the CJEU has dealt with two aspects of protection that consumers can re‐ ject – first, the possibility to reject the protection against being bound by an unfair contract term, and second, the protection against the particularly disadvantageous consequences of annulling the contract. Preserving an unfair contract term in a contract One of the foundations of the Unfair Contract terms Directive is the obligation impo‐ sed on national court to assess the unfairness of the term at its own motion. Conside‐ ring the lack of consumer engagement in initiating the unfairness control, the CJEU decided that consumers should have the possibility to reject the protection offered in this regard, i.e. the option to choose to remain to be bound by the term. In the judge‐ ment of 21 February 2013, Banif Plus Bank, C-472/11 (paragraphs 23, 27 and 35) and of 4 June 2009, Pannon GSM, C-243/08 (paragraphs 33 and 35) the CJEU stated that if the court finds a term unfair, it must not apply it, unless the consumer opposes that non-application. So an unfair contract term might still be applied if the consumer, ha‐ ving been informed of it by the court, does not intend to assert the unfair or non-bin‐ ding status of the term, thereby giving his free and informed consent to the term in question (Pannon GSM, paragraphs 33, Banif Plus Bank, paragraphs 23, 27 and 35). In the Banif case, the CJEU looked at the further obligations of national courts, which, when pursuing an ex officio control, must invite the parties to the proceedings to submit their observations on the court’s assessment as to the unfair nature of the term in dispute (paragraph 34). The CJEU highlighted that this opportunity afforded to the consumer meets the obligation of the national court to take into account, where appropriate, the intention expressed by the consumer when, conscious of the non-bin‐ ding nature of an unfair term, the consumer nevertheless states, that he is opposed to that term being disregarded, thus giving his free and informed consent to the term in question (paragraph 35). In the Dziubak case, the CJEU emphasised again how far it gives preferences to the wishes of the consumer. The Court stressed (paragraph 66) that the national court is under an obligation not to apply unfair contract terms, unless the consumer, having been informed by the court, does not intend to assert its unfair or non-binding status, thereby giving his free and informed consent to the term in question. If, however, the consumer does not consent to, or even expressly objects to the unfair terms concerned being upheld, then that exception is not applicable (paragraph 67), even if the court takes the view that the annulment would give rise to unfavourable effects for the con‐ sumer (paragraph 68). Rejecting the protection against the unfavourable consequences of annulling the contract While the Dziubak case directly builds upon the doctrine developed in Pannon and Banif, it deals with the informed consent of the consumer in another context: the unfa‐ vourable consequences caused by the contract being annulled in its entirety, as a result of finding some of its terms unfair (which can happen in an ex officio control as well 68 Aneta Wiewiórowska-Domagalska as when the process of control is initiated by the consumer). As established in Kásler and Káslerné Rábai (paragraph 84) the consequence of the annulment is that the out‐ standing balance of the loan becomes due forthwith, which is likely to be in excess of the consumer’s financial capacities and, as a result, tends to penalise the consumer ra‐ ther than the lender who might consequently not be dissuaded from inserting such terms in its contracts. The CJEU argued in Dziubak that, since the system of protection against unfair terms does not apply if the consumer objects to it, then the consumer must a fortiori be entitled to object to being protected against the unfavourable consequences caused by the contract being annulled in full if he does not wish to rely on that protection (paragraph 55). What follows (paragraph 56), when assessing whether the consequen‐ ces of annulling the contract are particularly detrimental for the consumer, the wishes expressed by the consumer in that regard are the decisive factor. It is difficult to establish how the practice of Polish courts looks when it comes to consulting consumers during an ex officio control of the term’s unfairness. While, in general, the Supreme Court recognises the obligation to take into account the unfair character of the term ex officio, the high-profile CHF loans cases in which it does so are normally those cases where the consumer has claimed the unfair nature of the term in question. Anecdotal data strongly suggests that an ex officio assessment takes place only rarely. The low-profile cases that never end up in the Supreme Court pro‐ ceeded on the basis of simplified procedures (the order payment procedures), recently gave foundation to a number of referrals to the CJEU, as the order payment procedure is constructed in a way that drastically limits the possibility of conducting the unfair‐ ness investigation. At the same time, a side result of case law research in the consu‐ mer sales area conducted in 2014 showed that the courts seem not to be concerned with the ex officio assessment.35 Applying the CJEU formula is definitely more complicated when it comes to ma‐ king sure that the consumer gives his free and informed consent about rejecting the protective measures that the Unfair Contract Terms Directive offers against the annul‐ ment of the contract. The difficulties relate to the fact that, so far, the case law develo‐ ped on the basis of the Unfair Contract Terms Directive did not answer many questi‐ ons in this regard. First, what should the scope of the information provided by the court be? In particular, should the information refer only to the legal consequences of the contract annulment, or should the court also explain the economic consequences of its decision?36 If the information about the economic consequences is not included, could one realistically conclude that the consumer makes an informed decision regar‐ ding the annulment of the contract? Does the scope of the information change in the case when the consumer has a professional representation, and if so – how? Should special rules exist in this context of collective proceedings (i.e. how to ensure that suf‐ 35 In all of the eight cases conducted in the payment order procedure, the courts failed to assess the evident unfairness of some terms (even if the consumers pointed it out), see: Aneta Wiewiórowska-Domagalska, Refleksje na tle orzecznictwa sądów powszechnych w zakresie sprzedazy konsumenckiej, Instytut Wymiaru Sprawiedliwości, Prawo w działaniu no 20, 2015 pp. 46–57. 36 Approach of the CJEU with regards to understanding transparency in the context of Article 4(2) would suggest that this should, indeed, be the understanding. How Does the Unfair Contract Terms Directive Penetrate National Legal Systems? 69 ficient information is provided to all the group members). Last, but definitely not least, does the informational duty of the court reflect on its duty when adjudicating, i.e. is the court obliged to give a judgement accordingly? (on this question see also the next point). The CJEU will soon have a chance to address at least some of these issu‐ es, as one of the questions included in the preliminary referral of the court in Gdańsk (C-19/20 Bank BPH) is whether Article 6(1) of the Unfair Contract Terms Directive must be interpreted as imposing an obligation on the national court to inform the con‐ sumer who has submitted a claim for the annulment of the contract in connection with the deletion of unfair terms of a contract, about the legal consequences of such a sett‐ lement, including possible restitution claims by the bank, even those not submitted in the proceedings in question, and those whose validity is not clearly established, even where the consumer is represented by a professional representative. These questions have not yet been addressed by the CJEU or by the Polish Supre‐ me Court. In the practice of the Polish courts of lower instance, however, this problem has been noted and is slowly rising. During court sessions, the courts began to inquire whether consumers understand the consequences of the loan being annulled. More‐ over, consumers are attaching to their suits statements that they understand the conse‐ quences that arise from the decision of the court to adjudicate according to the being claims pursued. While after the recent reform of the Polish Civil Procedure Code, the courts have gained (or rather re-gained) the possibility to engage in a dialogue with a party to the proceedings, fulfilling the requirements set by the CJEU requires a signi‐ ficant change in mental approach when it comes to the position of the judge and its relations with the parties in the proceedings. Therefore, it is not a well-grounded prac‐ tice yet. For example, in the justification of the judgement decided by the referring court in the Dziubak case (judgement of the District Court in Warsaw of 3 January 2020, XXV C 2514/19), while the court referred to its obligation to follow the wishes of the consumer to annul the contract (if this is, objectively speaking, the consequence of finding some of the contract terms unfair), it does not explain how it made sure that the consumer understood the consequences of the annulment. Settling the parties’ performances In principle, settling the parties’ performances resulting from the unfairness of the term remains outside of the scope of the Unfair Contract Terms Directive as, accor‐ ding to the CJEU case law, the consequences of the unfairness of the term are to be decided according to national law (see, for example: Asturcom Telecomunicaciones, paragraph 58; order in Pohotovosť, paragraph 62; Pereničová and Perenič, paragraph 30; Banco Español, paragraph 63). However, in the judgement of 21 December 2016, Naranjo, joined cases C-154/15, C-307/15 and C-308/15 the CJEU emphasized that while according to Article 6(1) the Member States lay down the rules according to which the unfair terms are not binding on consumers (paragraph 64), the national re‐ gulation cannot alter the scope and the substance of protection provided by the Unfair Contract Terms Directive (paragraph 65). That means that (paragraph 66) while it is for the Member States to define the detailed rules under which the unfairness of a term is established and the actual legal effects of that finding are produced, such a fin‐ 70 Aneta Wiewiórowska-Domagalska ding must allow the restoration of the legal and factual situation that the consumer would have been in if the unfair term had not existed. In the context of the CHF loans such an intertwining of national and EU law means a very complicated application of national provisions in a way that allows ful‐ filling the aims of EU law. For settling the parties’ performances in the CHF loans, the gravity of the challenge depends on whether or not the court establishes that the contract in question must be annulled as a result of the term’s unfairness. The legal situation is quite intriguing in this area. While the CJEU rather strongly suggests that eliminating the unfair indexing terms from the contract makes it very uncertain whether the contract may continue to exist (see: Dziubak case, paragraph 44), the Polish Supreme Court repeatedly takes the position that such a contract (both indexed and denominated) may continue to exist (see: judgements of 24 October 2018, II CSK 632/17; of 4 April 2019 (III CSK 159/17) and of 9 May 2019, I CSK 242/18; of 29 October 2019, IV CSK 309/18, of 27 November 2019, II CSK 483/18). The questions formulated in the Dziubak case were somehow not representative for the situation on the market as, before the CJEU gave the answers in the Dziubak case, it seems that most consumers claimed not for the annulment of the contract, but for transforming the CHF loan into a loan in PLN with the interest rate based on LIBOR, and the payments made to be recalculated accordingly. In one of such cases (judge‐ ment II CSK 483/18), the Supreme Court, when allowing the transformation of the CHF loan, emphasised the need to settle the performances of the parties to the loan contract, which continue to exist after deleting the unfair clause. The Court underlined that there are no reasons why courts should not settle the performances of the parties as a response to a potential claim put forward by the consumer. The Supreme Court explained further that, since the unfair contract terms are not binding on the consu‐ mer, they cannot give rise to any obligations, and that the payments made on their ba‐ sis are not due. In the area of the CHF loans, the problem of settling the performances of the par‐ ties after the annulment of the contract is probably the most pressing problem at the moment. In this case, certain guidance is already given by the Unfair Contract Terms Directive and the case law of the CJEU. First, it is obvious that the application of na‐ tional law cannot prevent the aims of the directive. Settling the performances should therefore contribute to substituting the formal balance established by the contract be‐ tween the rights and obligations of the parties, with the real balance re-establishing equality between them (Kásler and Káslerné Rábai, paragraph 82; Pereničová and Perenič, paragraph 31; Banco Español de Crédito, paragraph 40 and case-law cited therein) as well as the general prevention sought by Article 7(1) of the Unfair Con‐ tract Terms Directive. In other words, the consumer cannot be penalised as a result of relying on the unfair character of a term, and the trader cannot benefit from it. The effect of finding a term unfair should be the restoration of the legal and factual situati‐ on that the consumer would have been in if that unfair term had not existed, by inter alia, creating a right to restitution of advantages wrongly obtained, to the consumer’s detriment, by the seller or supplier on the basis of that unfair term (Naranjo, para‐ graph 66). The CJEU provides further guidance regarding the annulment. According to Kásler and Káslerné Rábai (paragraph 84), in general, the consequence of an an‐ nulment is that the outstanding balance of the loan becomes due immediately. Accor‐ How Does the Unfair Contract Terms Directive Penetrate National Legal Systems? 71 ding to the CJEU, this is likely to be in excess of the consumer’s financial capacities, and, as a result, it tends to penalise the consumer rather than the lender, who, as a con‐ sequence, might not be dissuaded from inserting the terms in its contracts. Therefore, the CJEU imposes an obligation on the national courts to examine whether the annul‐ ment of the contract would expose the consumer to particularly unfavourable conse‐ quences (Abanca, paragraph 61; it follows also from Kásler and Káslerné Rábai, pa‐ ragraph 80 to 84 and Dziubak, paragraph 48). So far, the Polish Supreme Court has not dealt with the performance settlement for annulled contracts. The courts of the lower instances are divided in their views. In so‐ me cases, after annulling the contract the courts decided not to settle the performances of the parties, due to the fact that the consumer did not pay all of the principal of the loan yet (that was the decision of the judge in the case that gave rise to the Dziubak judgement). The other solution is that the courts settle the undue performances of the parties, which must then be mutually returned. This type of settlement may also ex‐ haust further claims that the parties might have on the basis of national law, which is particularly important in the context of the campaign conducted by the banks, which want to demand payments from consumers for using the assets after the contract is annulled (there are also the first court cases in this respect37). The demands of the banks, if met, would eradicate the consumer protection measures provided by the Un‐ fair Contract Terms Directive, but also discourage consumers from even attempting to claim their rights on the basis of this directive. The situation may clarify soon, as two courts of lower instances38 have addressed the Supreme Court with questions regarding the settlement. The courts, in principle, inquire which of the two options should be used to settle the performances of the par‐ ties. The Appeal Court in Warsaw (I Aca 333/19) also asked about the procedural possibilities of the court when the consumer claims undue payments from the bank (if the court is entitled to annul the loan contract then simultaneously). At the same time, two questions referred to the CJEU by the court in Gdańsk (C-19/20 Bank BPH) deal with the settlement, which illustrates how complicated the division of the matter un‐ der the Unfair Contract Terms Directive between national courts and the CJEU is. In one of the questions, which in principle concerns informational duties, the Polish court refers to the further restitution claims of the banks, which were not even submit‐ ted in the proceedings, in which the annulment of the loan contract is to be decided. Another question deals expressly with the technicalities of the contract annulment. The court inquires whether the annulment of the contract as a result of deleting an un‐ fair contract term under Article 6(1) of the Unfair Contract Terms Directive is a sanc‐ tion that may arise as a result of a constitutive court decision made at the express re‐ quest of the consumer, with consequences from the time of concluding the contract (ex tunc) and the restitution claims of the consumer and the trader become due and payable as soon as the decision becomes final. According to the referring court, the 37 https://www.rp.pl/Banki/307249910-Banki-powalcza-o-oplaty-za-kapital-od-frankowiczow .htm, https://www.rp.pl/Banki/301239875-Frankowicze-nie-musza-zaplacic-za-kapital.htm l. 38 III CZP 11/20 and I Aca 333/19. 72 Aneta Wiewiórowska-Domagalska constitutive character of the court’s decision may have an influence on the application of prescription rules to the claims of the bank. It is difficult to predict what the position of the CJEU will be, though it has nor‐ mally been keen to answer this type of questions, even if only to suggest certain natio‐ nal law solutions. Likewise, it is unclear how the Supreme Court will answer, con‐ sidering the very unstable line of reasoning it presented in the CHF loan cases so far. The Polish Supreme Court is undoubtedly changing its position towards EU law and the obligation to ensure its effectiveness. In its judgement of 1 March 2017 (IV CSK 285/16), the Supreme Court took the position that a preliminary referral to the CJEU would be premature without a prior comprehensive analysis and the national courts expressing their position. At the same time, in its resolution of 12 December 2019 (III CZP 45/19), the Supreme Court emphasised that the national courts are bound by the CJEU’s interpretation, but also that a judgement of the Supreme Court, issued in evi‐ dent violation of EU law, might constitute grounds for the State’s liability for the da‐ mage that the citizens encountered as a result of the infringement of EU law. Answering the settlement questions in accordance with EU law would give the Supreme Court a chance to stabilise the proper case line, accelerate the process of sol‐ ving the CHF loans problem, and also to establish the position of the Supreme Court as a truly European court. In this regard, it will also be important, what stance the CJEU takes towards the division of competences between the CJEU and national courts, and what impact it will have on the position of the Supreme Court. Conclusions: perseverance and understanding the methodological differences in a long and complicated process This article clearly shows how dynamic and how complicated the process of introdu‐ cing the EU solutions regarding unfair contract terms into the national legal systems is. It is hindered not only by the limits (mental and organisational) of the national le‐ gal system, but also by the way the CJEU’s case law regarding the Unfair Contract Terms Directive is developing. The content of the Unfair Contract Terms Directive re‐ flects the casuistic nature of unfair terms used by traders on the market. The case law of the CJEU which follows this casuistic pattern, is difficult to translate into norms of general application, which are needed at the national level. What adds to the challen‐ ge is the great and growing number of cases decided by the CJEU in relation to the Unfair Contract Terms Directive. It is obvious that the problem of CHF loans could have been better addressed in Poland at the legislative level. If addressed timely, the problem could have never ari‐ sen. It is also obvious that the courts should not be the only instance to assure that EU law is properly applied at the national level. The Polish CHF loans problem very well illustrates how inactivity by the legislator and the government can push national courts into a position where the entire weight of the problem will be placed upon them. The great number of cases already decided by the Polish courts allows the pro‐ blems with applying EU law, in particular the CJEU’s case law, to be identified. The interplay between EU law and national law creates a complicated structure with un‐ V. How Does the Unfair Contract Terms Directive Penetrate National Legal Systems? 73 clear boundaries. Applying the CJEU’s case law requires not only thorough know‐ ledge of the content of the case law, but also knowledge and understanding of the ent‐ ire setting of EU law and its interactions with national laws. The Court of Justice at the same time establishes limits on the operation of EU law at the national level, ex‐ plains what conditions need to be met at the national level in order to guarantee the required effectiveness of EU law, and sets the criteria that allow those conditions to be met. National legal systems must be open to and willing to accept those solutions. From the point of view of a national judge, EU law (and in particular the CJEU case law) requires not only an exceptionally high level of knowledge and legal skills, but also engagement and courage in breaking with ones’ legal tradition. The CJEU case law cannot be applied in a national legal system using the same criteria as when applying a decision of the national supreme court. The differences, although clearly identifiable at the level of theoretical analysis, are challenging to apply in practice, due to the characteristics of EU law. What is particularly testing from this perspective, is that the judgements of the CJEU are casuistic, they seek to answer specific questi‐ ons, posed by the referring court in specific circumstances of the case. Moreover, when providing the answer, the CJEU relies on the position of the referring court, when it comes to the facts of the case and its national legal evaluation, without verify‐ ing them. While the situation in Poland is slowly moving in a good direction, there is still much to be done, which includes discussion concerning the means that ensure the pro‐ per functioning of EU law in Poland. The CHF loans problem proved that, 16 years after joining the EU, the Polish courts are not prepared to apply EU law. Paradoxical‐ ly, if they had been, the problem would have never reached that size. The rapid and decisive application of EU law, with its preventive effect, would have convinced the banks that settlements are an acceptable option. As a result, the cases are still multi‐ plying, no systematic solution is in sight, and many consumers have (unfortunately) lost their battles with a violation of EU law. This raises questions regarding both the possibility to reinstate such cases, as well as the state’s liability for judgements con‐ trary to EU law. Considering, how quickly judges learn about the possibilities offered by EU law, it is possible that we will soon hear about both. 74 Aneta Wiewiórowska-Domagalska

Abstract

The main aim of this article is to present the process of how the Unfair Contract Terms Directive was accepted into the Polish legal system. In order to do so, it first briefly explains, how the problem that allowed the massive testing of the Unfair Contract Terms Directive, i.e. the vast amount of consumer mortgage-secured loans for housing purposes, indexed or denominated in CHF (further: the CHF loans) came into existence in Poland. The story of the CHF loans also perfectly illustrates how the Polish legal system, which had taken a very liberal turn after 1989, struggles with the EU consumer protection concepts (which might also be representative for other countries of young democracies). It shows how the lack of adequate reactions of the governmental agencies led to burdening the judiciary system with the weight of the CHF loans problem, and how the Polish courts have not been sufficiently prepared for applying EU law. As an example, the article presents three issues that are at different stages of development when it comes to the completeness of the dogmatic construction, and which vary, when it comes to the degree of their intertwining with EU law.

References

Zusammenfassung

Osteuropa Recht behandelt Gegenwartsfragen der Rechtssysteme und Rechtswissenschaft im östlichen Europa sowie deren völkerrechtliche Einbindung. Im Fokus stehen die ost-, ostmittel- und südosteuropäischen Staaten sowie der Kaukasus und Zentralasien. Die Zeitschrift dokumentiert und analysiert Gesetzgebung, Rechtsprechung und rechtswissenschaftliche Debatten in den einzelnen Staaten der Region und leistet einen Beitrag zum internationalen Rechtsvergleich. Die Zeitschrift erscheint vierteljährlich und ist peer-reviewed. Publikationssprachen sind Deutsch und Englisch. Osteuropa Recht wurde 1954 von der Deutschen Gesellschaft für Osteuropakunde e.V. gegründet.