Unfair Contract Terms Directive, Article 3

The judgement refers to the contract for a loan indexed in a foreign currency concluded between a bank and a consumer. Lack of a transparent and unambiguous mechanism for determining the exchange rate by the bank may be considered as an unfair term.

The claimants turned to the defendant bank (...) S.A. in K. for the grant of a loan in the amount of PLN 1,050,000.00 for the purchase of a house. Initially, the plaintiffs intended to take out a loan in Polish zlotys, but eventually, in connection with the offer, the defendant's employees chose a loan indexed by the Swiss franc (CHF) rate, which at the time seemed to them more favourable. The parties concluded a Mortgage Loan Agreement in PLN, with an indexed  CHF rate. The parties agreed that the bank grants the borrower a PLN loan indexed with the CHF rate and that the equivalent amount in CHF will be determined on the basis of the bank's CHF cash purchase rate on the day of disbursement (launch) of the loan tranche (rate recorded in the bank's first exchange rate table - Table A on that day) and will be given in the repayment schedule. The loan, interest and other liabilities expressed in CHF were to be repaid in PLN, as the equivalent of the instalment in CHF converted according to the bank's CHF cash sale rate on the day of instalment repayment (exchange rate recorded from the first exchange rate table of the bank - Table A on that day).

Can a provision of a contract be considered unfair when the indication as to how currency is converted is ambiguous and open to interpretation?

The provisions of the contract or template, set unilaterally by the bank, and granting it the right to unilaterally, independently determine the buy and sell rate of CHF in relation to PLN without indicating the rules for shaping this rate are provisions violating decency, because they harm the essence of the contractual balance of the parties. A gross violation of the consumer's interests means an unjustified disproportion of rights and obligations arising from the contract to his disadvantage, resulting in an unfavourable shape of his economic situation and his unfair treatment. When assessing the premise of gross violation of the consumer's interest, the Court should also consider the contractual mechanism imposed by the entrepreneur to shape the rights and obligations of the borrower, taking into account the risk to which he was exposed by concluding an agreement including an abusive provision enabling the bank to unilaterally determine and shape the exchange rate in the course of performing the agreement. A reference to the exchange rates contained in the bank's "exchange rate table" means a violation of the equivalence of the parties to the contract by an uneven distribution of rights and obligations between the partners of the bond relationship. The right to set the currency rate unilaterally formed in the loan agreement by way of a resolution taken from the agreement template by the bank may not be arbitrary (i.e., it shall not experience any restrictions in the form of specific, objective criteria for changes in the exchange rates used). They should be assessed as part of the content of the contract resulting in an uneven distribution of rights and obligations of the parties to the loan agreement, leading to a violation of consumer interests, including primarily economic interest, corresponding to the amount of individual loan instalments. In this respect, significant importance should also be attributed to the requirement of appropriate transparency and clarity of the contractual provision (i.e., the answer to the question whether the concluded contract clearly indicates the reasons and the specifics of the currency conversion mechanism, so that the consumer can predict, on the basis of transparent and understandable criteria, the  economic consequences).

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The Supreme Court  upheld the plaintiff’s appeal, repealed the judgement of the Appeal Court and sent the case back to a retrial. Provision of the loan agreement denominated in a foreign currency, which provides for the establishment of a currency exchange rate by the bank, has been considered to be an unfair term.