On 14 April 2015, the Polish Constitutional Tribunal rendered a ruling that triggered a great commotion on the Polish market of banking services. The Tribunal declared Article 96 sec. 1 and Article 97 sec. 1 of the Banking Act – regulations constituting Banking Enforcement Title – as contrary to the principle of equality (case No P 45/12). In response to the judgment, the state legislator derogated this instrument from the Polish legal system with effect from 27 November 2015.
About BET
A Banking Enforcement Title (bankowy tytuł egzekucyjny; hereinafter referred to as BET) was a legal privilege given to banks towards their debtors in a legal relationship based on banking services. It enabled a bank to commence enforcement proceedings on the basis of a title issued by the bank itself, without being obliged to submit the merits of its claim for examination at trial.
The legal framework for BET was set out in Articles 96 – 98 of the Banking Act of 29 August 1997 (hereinafter referred to as b.a.) as well as in Article 7862 of the Polish Code of Civil Procedure (hereinafter referred to as c.c.p.). According to these provisions, banks may issue Banking Enforcement Titles on the basis of their books or other documents related to the performance of banking services. These documents had to meet a number of formal requirements, including a precise specification of the debtor who was liable to pay, the amount of the debt to be paid, the interest due and payment dates, as well as the banking service that gave rise to the claim.
In order to commence enforcement proceedings, a bank submitted a BET to the court along with a motion for a writ of execution (klauzula wykonalności). The writ was given after certain formal requirements had been completed, without an examination of the merits of the bank’s claim.
First and foremost, the court verified whether a debtor had submitted voluntarily, in writing, to the execution of the bank’s claim. The statement had to contain two elements: the maximum amount of the debt up to which a BET could be issued, and the deadline until which the bank could apply to the court for the writ of execution.
Secondly, the court examined whether the claim that was the subject of the BET had arisen from a banking service concluded directly with a bank, or from security on a bank’s claim arising from such an operation. The list of activities constituting ‘banking service’ is set out in Article 5 of the b.a.
If all the requirements were met, the court granted the writ of execution – in principle only against a debtor who was either a direct counterparty to the banking service or a securing party, obliged under the security on the bank’s claim arising from the banking service.
Under Polish law, a BET was not the only case when a title of non-court origin gave rise to enforcement proceedings, but it was the only one that could be issued by the creditor itself. For these and many other reasons it has raised controversies in legal circles as regarded compliance with the Polish Constitution. These doubts have deepened as a result of the widespread use of this instrument in the marketing practice.
BET before the Constitutional Tribunal
It is worth mentioning that this is not the first BET case examined by the Polish Constitutional Tribunal. One of the most important ones is a ruling from 26 January 2005 (case No P 10/04), where the judges of the Tribunal were discussing the problem of the alleged non-compliance of the Banking Enforcement Title with the right to a fair trial, enshrined in Article 45 sec.1 of the Constitution The Tribunal at that time came to the conclusion that there was no breach in this area.
The ruling mentioned above did not dispel all existing doubts, which brought about a question posed by the District Court in Konin to the Constitutional Tribunal in case No P 45/12, which is the subject matter of this paper.
This time the judges of the Constitutional Tribunal focused on the BET in relation to the constitutional principle of equality set out in Article 32 sec.1 of the Constitution. This article states that all persons are equal before the law and have the right to equal treatment by public authorities. The rule of equality requires equal – neither discriminating nor favouring – treatment of all persons subject to the law, as long as they can all be characterised by a relevant feature. The Tribunal found this common element in a contractual relation between a bank – as a creditor – and its client – as a debtor. Even though their situations might seem different, they are both parties to the same private law relationship. This enabled the Tribunal to compare them in light of the constitutional principle of equality.
BET as the privilege causing inequality between the bank and its client
In the course of this comparison, the Tribunal made a brief summary of the situation of both parties, pointing out that banks, even though economically stronger, were additionally heavily privileged over their clients thanks to the institution of BET.
The procedure of pursuing claims via BET was significantly simplified. First of all, banks did not have to file a lawsuit, bear the burden of proof nor pay a regular court fee (which is normally 5% of the amount of the claim). They only submitted the BET with a motion for a writ of execution and paid PLN 50 (ca. €12) as the fee. The procedure before the court was strictly formal. The court verifies whether the BET meets all the formal requirements, it was not allowed to examine the merits of the claim.
The proceedings were conducted ex parte, the debtor was not notified of the commencement of the proceedings, the court did not deliver its decision to him or her. There were even no legal provisions obliging the bank to inform the debtor that the BET had been issued and the motion for the writ of execution had been filed with the court – it lay only within the internal provision of the bank.
The first moment when the debtor was officially informed about the writ of execution was the commencement of enforcement proceedings. From that moment on, the time for a complaint against this decision started running for the debtor. It could only invoke formal arguments, however. To challenge the merits of the claim, a debtor had to file a lawsuit against the bank – “anti-execution action” (powództwo przeciwegzekucyjne).
This means that the whole burden of litigation was reversed and lay on the debtor, who had to draft a claim, pay the full court fee and provide evidence for his or her arguments. It must be remembered that all this happened in the course of enforcement proceedings, while the assets of the debtor were distrained, unless he or she successfully applied for a stay of execution.
Is there a justification to the privilege?
Having made all these observations, the Tribunal posed the question: does the legal status of banks or any other factor justify these privileges? The principle of equality, after all, is not an absolute one. There may be some exceptions to this rule, as long as regulations differentiating the situation of similar entities are relevant, proportionate and serve the purpose of protecting other constitutional values. To find an answer to the question, the Tribunal responded in its reasoning to a number of arguments raised by supporters of the BET at the stage of written pleadings.
Historical arguments
First of all, the Tribunal referred to the historical arguments – that the institution of BET has a very long tradition in the Polish legal system, originating in the interwar period. In this way, supporters of BET wanted to refute allegations of it being a concept from the communist era. The Tribunal noted, however, that in the legal system before World War II, this privilege was granted only to certain state-owned banks (such as the State Agricultural Bank) and only if they were executing public tasks, funded from public resources. Nowadays the legal reality has changed. The banks are largely private and are conducting their commercial activity purely for profit, without participating in any way in performing public functions. They belong to the richest and strongest members of the market. These circumstances certainly cannot be the reason for such privileges.
BET as a result of the autonomy of the parties
The most important argument, however, raised in favour of BET was the debtor’s submission to execution, which was a prerequisite for issuing BET. It was argued that this voluntary submission was the emanation of autonomy of the parties, and fully legitimised the existence of BET in accordance with the rule volenti non fit iniuria.
The Tribunal did not share this position, pointing out that the autonomy of the parties constitutes the core principle of private, not public law. However, the submission to enforcement was a procedural act governed by the public law of civil proceedings, where the rule of autonomy does not apply. In addition, the Tribunal noted that the voluntary nature of the submission was only theoretical. In practice it was an obligatory condition upon concluding a contract with a bank. Clients of the bank were de facto forced to sign it, otherwise they would not obtain a loan, not to mention the fact that the submission was often hidden among the various provisions of the contract and the client was not fully aware of it.
Banks as an institution of public trust
Furthermore, BET supporters saw justification of the banks’ favourable position in their status as institutions of public trust. In response to this argument, the Tribunal, argued that this status has no legal basis, it is purely factual and comes from the very essence of the banks’ activity – which is organising the financial market and guaranteeing the integrity and stability of the financial system.
Banks as representatives of the bank deponents
This special and significant role of banks in the state economy was another argument in favour of BET. The Tribunal acknowledged that the subject matter of banks’ business activity differs remarkably from the activity of other commercial entities. Banks have an obligation to care for the funds deposited to them. Therefore, the effective and quick collection of debts lies not only within the interest of the banks, but also within the interest of their deponents.
Respecting this argument, the Tribunal stated that the primary means to ensure liquidity and security of deposits should be a reasonable lending policy, adjusting the amounts of loans to the personal and financial situation of the borrowers, and establishing suitable security. The Tribunal reminded that, even without BET, banks still have at their disposal a number of instruments and simplified procedures by which to collect their receivables.
Instruments at the disposal instead of BET
As an example, the Tribunal mentioned a blank bill of exchange. Articles 4841 et seq. of the Polish Code of Civil Procedure set out a highly simplified procedure in which the court renders an order of payment on the basis of a bill of exchange. The order becomes immediately enforceable at the moment when the claim becomes due. The advantage of this procedure over BET, in the context of compliance with the Constitution, is that the order of payment is awarded in the course of court proceedings, where the rights of the parties are guaranteed and the merits of the claim are examined in light of the law and the principles of social coexistence, even if this examination is highly simplified.
Another instrument at the disposal of banks is a notarial deed containing the debtor’s submission to execution, as specified in Article 777 § 1 sec. 4-6 c.c.p. This solution provides, among other things, that debtors may voluntarily submit themselves before a public notary to the enforcement of their obligations to pay an amount of money. Such a notarial deed, after meeting several other conditions, may be granted a writ of execution the same as BET – without the claim being submitted before the court in a normal adversarial procedure. The Constitutional Tribunal underlined, however, that there is a vital difference between BET and a notarial deed. Firstly, the latter is not issued by the creditor. Secondly, it is given before a public notary, who is, after all, an institution of legal protection, a person of public trust and who is obliged by law to act impartially, with the highest level of diligence, respecting the interests of both parties.
Possible negative effects of BET derogation
There were still a number of arguments raised in favour of BET, as a warning against the possible negative effects that the absence of BET may have on the banking system, the debtors, economy and the judicial system.
Generally, it was argued that Banking Enforcement Titles were in fact beneficial also for debtors. A vast majority of the claims covered by BET were uncontested. In the absence of BET, banks would secure their claims by the already mentioned notarial submissions to execution, or would turn to court proceedings – in both cases passing the costs on to the debtors.
Furthermore, the derogation of BET would lead to increased risk and costs of banking activity, the need to search for other measures of securing claims, and therefore decreased accessibility to credit, higher costs and lower interest rates on deposits.
As far as the judicial system is concerned, the lack of BET may lead to an increased number of cases in the civil courts, higher costs for the state budget and the need to provide more judges in order to avoid extending the length of court proceedings.
Deferment of the effects of the judgment
It seems that all these problems, even though not addressed directly in the reasoning of the judgment, were taken into account by the Tribunal in its decision to defer the date on which unconstitutional provisions were to lose their binding force until 1 August 2016, unless they are repealed or changed earlier by the legislator . The Tribunal underlined that it is up to the legislator in the deferment period to conduct all the possible analyses and surveys, and to choose an optimal solution, weighing the interests of banks, their debtors, their deponents and the state. This decision was also intended to facilitate the conclusion of pending cases and to secure sufficient time for the legislator to pass relevant interim laws.
The Tribunal firmly underlined that, in the deferment period, the courts had an obligation to apply the challenged provisions, even though the presumption of their constitutionality had been rebutted. This matter has been thoroughly discussed in particular in the reasons of the dissenting opinion from Judge Piotr Tuleja, who agreed with the decision of the Tribunal as to the merits, but dissented from its reasoning. The Judge referred to cases of district courts that, in the period after pronouncing the judgment and before publishing its written reasoning refused to grant writs of execution to BETs, invoking the unconstitutionality of the relevant legal provisions. Judge Tuleja pointed out that such an interpretation was incorrect, and could lead to “secondary unconstitutionality”, which could be much more serious than the primary unconstitutionality of the revoked provisions. The repealed regulations concerned banks and all their customers – not only borrowers, but also clients who entrusted their deposits to the banks. Relations between banks and the deponents were created with the assumption that there would be the possibility of a quick execution based on BET. Therefore, the deferment period was needed for banks and their customers to redefine their relationships. Otherwise their constitutional rights could be endangered.
The new legislation
In response to the judgment of the Tribunal, new legislation has been recently adopted – the Act Amending the Banking Act and other Corresponding Regulations of 25 September 2015. The bill entered into force on 27 November 2015. It derogates the unconstitutional Articles 96-98 b.a. and the corresponding Article 7862 c.c.v.
The bill provides also for a change in the Act on Court Fees in Civil Cases. The court fee in cases of claims arising from bank activities will amount to 5% of the value of the claim, no less than PLN 30 (ca.€ 7.50) and no more than PLN 1,000 (ca.€ 250).
The draft also introduces several interim provisions. In general, proceedings for granting a writ of execution initiated but not concluded before the amendment entered into force will be cancelled. However, if the writ of execution had been granted by this date – further proceedings (e.g. following a complaint) in that matter will be conducted in accordance with the legislation in force to that date. BET equipped with a writ of execution before the above mentioned date remains valid and enforceable
Conclusion
Banking Enforcement Titles, even though present in the Polish legal system for decades, having passed the test of fair trial, are now deemed to have failed to meet the constitutional standards of the principle of equal treatment. The economic discrepancy between the bank and its client, deepened by the privilege of BET, has reached an extent that could not be regarded as proportionate and justified by the special role of banks in the state economy. Taking into account the wide use of BET, its derogation will certainly have an impact on the banking system. Nevertheless it should be underlined that the derogation of BET does not leave banks without sufficient means to pursue their claims. It simply repeals an extraordinary instrument that had enabled banks to circumvent the standard procedures.
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