Covid-19 coronavirus: litigation in Poland
27 March 2020
Implications for banking and consumer litigation during the Covid-19 coronavirus pandemic, against the backdrop of the draft acts forming part of the "Anti-Crisis Shield" (the Draft Act), as at 26 March 2020.
1. Court's lockdown
- Since mid-March most courts have cancelled all hearing dates for March and April. The Act will extend the lockdown to all courts until the end of the pandemic. Specific types of cases, such as criminal and family cases, are given priority and will be heard as usual (to the extent possible).
- Under the Draft Act, urgent cases pending before a court that is completely locked down may be reassigned to a different, operating court. However, the priority list does not include enforcement cases or injunction proceedings (the latter were included in the previous version of the Draft Act).
- Many courts have stopped issuing documents imposing procedural deadlines, effectively suspending their jurisdiction. The Draft Act will suspended all court deadlines by law, while parties can still opt to meet them and exercise their rights and obligations.
- Under the Draft Act, the limitation periods will be suspended for the duration of the pandemic.
- Access to courts is restricted, with some courts entirely closed.
- Many judges are currently on leave, taking care of their children, due to the forced temporary closure of all schools and kindergartens.
- Post offices are closed or have reduced their operating hours.
- The Draft Act allows the e-filing of pleadings, including email filing of scanned copies (on certain conditions).
2. Commercial background
- Following the outbreak of the pandemic, many parties have been unable to meet their contractual obligations. Some are already renegotiating their contracts.
- The Draft Act aims at regulating several sectors, altering the obligations of parties to, among others, loan, insurance or lease agreements.
- Many construction and other projects may be affected, and different parties benefitting from bank guarantees may be as eager as ever to call on them, likely resulting in banks being forced to take part in litigation.
3. Consumer background
- Poland has relaxed the consumer bankruptcy regime with effect from 24 March 2020. Until the new regime came into force, there were approx. 8,000 consumer bankruptcies annually. Epidemic notwithstanding, this number had been expected to rise —it is now likely to soar.
- Banks have been stripped of their various procedural privileges over the last couple of years and are now facing a rising number of claims from their previously litigation-averse clients, backed by consumer-friendly case law of the CJEU.
- Financial institutions are statutorily obliged to respond to their clients' complaints within a specific deadline (a maximum of 30 days from the date of receiving a complaint; for specific and complicated cases – 60 days; complaints regarding payment services – 15 days). Meeting these deadlines has become problematic, especially where the contract allows for traditional mail notices only. The Draft Act addresses this issue by giving a competent minister the power to extend these deadlines.
- The pandemic has caused an increase in the PLN/CHF exchange rate, which affects approx. 450,000 Polish households with CHF mortgages. This may see the number of disputes against the banks in which consumers seek to invalidate CHF loans multiply. The previous, unofficial version of the Draft Act aimed at lowering loan repayments by replacing the current rates with Poland's central bank's CHF/PLN fixed rate as of 13 March 2020 to be used to calculate repayments throughout the pandemic. If adopted, this would place an unrestricted currency risk on banks. The consumer protection institutions would also recommend pausing loan repayments for up to a year. The final shape of these measures is still being discussed.
4. What this means for litigants generally
- Commercial or consumer litigation will be put on hold. And while cases will restart once the epidemic ends, it will take months before the courts can clear the backlog. This should incentivise all parties to negotiate and reach amicable solutions.
- It is likely there will be a lot of coronavirus-related cases (including hardship-related disputes), which will be spread among different courts and will inevitably produce different outcomes and legal standards until case law settles down a couple of years down the line. Yet another reason to seek an amicable solution before referring a dispute to the courts.
- If negotiations fail, parties should consider mediation, which can be conducted online and save on time and cost.
- Commercial parties should consider including an arbitration clause when renegotiating their contracts. Arbitration can generally be conducted online, however if the award is not complied with voluntarily, enforcement will have to wait until the end of the pandemic.
- No matter the agreed dispute resolution mechanism, parties should make sure to preserve evidence of the impact that COVID-19 may have had on their performance and keep track of relevant correspondence and negotiations.
- Introduction of e-filing, which has long been overdue, is likely to survive in some form after the end of the pandemic and will potentially help the courts catch up with the growing backlog of cases.
- Generally, although no urgent action is required given the suspension of contractual deadlines and limitation periods, any decisions should be made case by case.
5. What this means for banks
- Enforcement of secured claims will be delayed. While creditors will officially still be able to obtain writs of enforcement on submission to enforcement deeds, this will likely take months rather than days or weeks. The same applies to bailiff-driven enforcement. Therefore, banks should reconsider restructuring options, taking into account the increased costs of enforcement.
- Likewise, banks should consider adjusting the dispute resolution clause in finance documents with commercial parties to include an option to arbitrate and mediate as a pre-litigation mechanism.
- Unless the deadlines for pre-litigation correspondence with consumers is extended, financial institutions should consider contingency plans to be able to meet the deadlines. If the contract dictates traditional notices in writing, and this cannot be processed, banks should consider emailing or calling their clients instead, and recording these attempts for the purposes of potential litigation. This is to minimise the risk of the banks being found to have tacitly accepted the clients' requests.
- Despite the courts' lockdown, the banks should process consumer cases as usual, to the extent possible, ie file or prepare pleadings for filings etc., or else they may be overwhelmed when the courts resume hearing cases.
- Otherwise, banks should consider agreeing and proposing to mediate or arbitrate disputes with consumers, resorting to online services offered by various institutions such as the Financial Ombudsman or the Polish Banking Association.
- Given the economic situation, banks should be as careful as ever when confronted with calls on bank guarantees, to avoid claims from applicants/instructing parties.