Charge of detention in Swiss franc cases – is there anything to fear?

For many years, consumers have been in disputes with banks regarding the declaration of invalidity of foreign currency-linked loan agreements, the so-called ‘franking credits’. The banks, which currently lose more than 90 per cent of the cases before the ordinary courts, are constantly looking for more ways to discourage borrowers from going to court, or to make it more difficult for them to obtain their receivables. One of these is the plea of retention raised in the course of the case before the court.

What is a plea of retention?

Pursuant to Article 496 of the Civil Code, “If, as a result of withdrawal from the contract, the parties are to return the counter-performance, each of them shall be entitled to a right of retention until the other party either offers to return the performance received or secures the claim for reimbursement“. Importantly, the indicated provision also applies in the case of invalidity of the reciprocal contract.

The above means that in the case of a judgment in favour of the borrowers, stating the invalidity of the agreement and the Bank’s obligation to fulfil the adjudicated performance, the Bank demands a stipulation that its performance is conditional on the simultaneous fulfilment by the borrowers of a reciprocal performance consisting in the payment by the borrowers of the value of the capital made available to them under the loan agreement.

In practice, this looks like this: for example: The Bank retains the amount of the loan so far repaid by the borrowers until the borrowers have spent the loan amount. It is often the case that, at the time of judgment, the borrowers have long since repaid the entire capital, but the Banks nevertheless try to raise the claim of retention. This would mean that in a situation where the borrower has received, for example, PLN 200,000 from the Bank, and has repaid to the Bank PLN 300,000, he or she would have to accumulate an additional PLN 200,000 to secure the claim. (Of course, there may be different configurations depending on the facts).

Even at first glance, one can tell that ‘something is not right here’. Banks argue that the filing of a retention plea is supposed to protect the bank from the insolvency of the consumer.

However, if the consumer is only claiming an overpayment from the bank over and above the capital returned to the bank, it must be assumed that the right of retention does not apply at all. Since the bank will still be in possession of the entire capital after the conclusion of the court proceedings and the enforcement of the judgment, it cannot demand its re-payment in order to block the consumer’s claims relating only to the excess over the repaid capital.

Quite apart from the above, it should also be pointed out that the Bank’s security is sufficient, in the vast majority of cases, the mortgage registered in favour of the Bank, so there is no need for further security.

No basis for the application of the plea of retention in franking cases

It should first be noted that the right of retention can be raised in relation to reciprocal contracts, and a credit agreement is not such. A contract is mutual when the parties undertake in such a way that the performance of one is to be equivalent to that of the other. A credit agreement provides that the borrower shall return the same performance rather than provide another equivalent performance. In the case of a credit agreement, we are not dealing with a reciprocal contract because the mutual performance of the parties to the agreement is not equivalent. It does not meet the criteria set out in Article 487 § 2 of the Civil Code which states that “A contract is mutual when both parties undertake in such a way that the performance of one
ofthem is to be equivalent to the performance of the other. ” A reciprocal act is accompanied by an intention to exchange various goods, e.g. a thing for another thing, money for a thing, money for services. A credit agreement does not meet these conditions.

Banks in this type of case refer to the Supreme Court Resolution of 16 February 2021 in Case No. III CZP 11/20. The Supreme Court expressed the view that the lender may use the right of retention in order to avoid the risks of insolvency of the borrower (consumer). The Supreme Court held that the obligation to repay the capital is more than an obligation to render a consideration, it is more fundamental than the obligation to pay interest. This position was reiterated in the resolution of a panel of 7 judges of the Supreme Court of 7 May 2021, III CZP 6/21, but – as a view expressed in the grounds – does not have the force of a legal principle, as this is reserved exclusively for the operative part of the resolution.

In addition, this position may soon be challenged in case III CZP 85/21, in which the Supreme Court will resolve the key legal issues identified by the Court of Appeal in Gdańsk on 16 December 2021, which relate to the legal nature of a loan agreement and the issue of admissibility of a plea of retention in proceedings concerning loan agreements.

Further reasons for the ineffectiveness of the plea of retention

In case law, it is permissible to raise a procedural alternative plea of set-off if a party has made a substantive unconditional declaration of set-off, which may be an argument in favour of the admissibility of a procedural alternative plea of retention. It is, however, inadmissible to make a substantive allegation of retention in an eventual form, i.e. subject to the condition that the court issues a judgment allowing the action for payment in the future.

In addition, examples of mistakes made by the Banks when raising a plea of retention should be pointed out:

– failure to call on the claimant to pay,

– submission of a conditional (potential) substantive retention claim,

– failure to prove the retention claim in respect of the capital, and in principle and in amount – in respect of the remuneration for non-contractual use of the capital.

Attention should be drawn to the last subsection relating to remuneration for the non-contractual use of the capital.

It happens that the Bank raises a plea of retention until the borrowers offer to reimburse it the entire amount of the provided credit, as well as the amount of remuneration for the use of the provided capital.

The right of retention under Article 496 of the Civil Code in conjunction with Article 497 of the Civil Code only covers benefits of the parties that have been wrongfully fulfilled on the basis of an invalid contract. The right of retention under these provisions cannot be extended to other claims, including, in particular, the claim for remuneration for uncontractual use. Article 496 of the Civil Code should not be interpreted broadly with respect to the type of claims that may be covered by the right of retention under this provision.

It is further questionable whether a bank has a claim against a consumer for remuneration for non-contractual use where a credit agreement is ineffective due to the bank’s use of prohibited contractual terms.

The above issue will be decided at the Court of Justice of the European Union in case number C-520/21 – a judgment in this case is expected in the first half of 2023.

Summary

Despite the arguments set out above, the ordinary courts are divided in their views on the use of detention in franking cases. Therefore, it is important to prepare a properly drafted pleading in order to convince the court as to the ineffectiveness of the allegation of retention.

Brysiewicz, Bokina, Saklawski and Partners law firm has successfully litigated disputes concerning franking credits over the past years. Thanks to our experience, we are able to help even in the most complicated factual situations.

Author: Legal trainee Mikołaj Lelito