Indexation clauses in a swiss franc credit agreement (CHF)

In the judgment of December 24, 2018, the District Court in Łódź, the III. Civil Appellate Division file no. 1969/17 made a thorough legal assessment of indexation clauses. In the Court’s view, indexation clauses do not concern the main services of the parties, they were not subject to individual negotiations, they are contrary to accepted principles of morality and grossly violate the interests of consumers (credit recipients)

Lack of individual reconciliation of indexation (valorization) clause in the credit agreement (CHF)

In the justification of the cited sentence, we read that: “The fact that the plaintiffs themselves applied for a loan indexed to a CHF foreign currency does not in any way indicate an individual agreement on the content of the provisions regarding indexation.” In addition, the Court indicated that: “The consent to conclude a credit agreement containing indexation clauses is not at all the same as the fact of individual negotiations regarding the content of these specific clauses.”

The provisions of indexation clauses (valorization, conversion) do not apply to the main services of the parties

The court found that: “Although the problem of valorizing the amount of credit and loan installments and converting these receivables from foreign currency into Polish currency is indirectly related to the payment and repayment of the loan, there are no grounds to assume that the arrangements in this respect are provisions for the main services of the parties. These are collateral orders of secondary importance. The main services of the parties apply only to such constructional elements of the contract, without which it would not have been concluded.”

The contradiction of indexation (valorization) clause with good morals

In its considerations, the Court clearly indicated that the assessment of the contradiction of the indexation clause with good morals should be made only as of the date of the contract’s conclusion.  It is insignificant how the indexation clause was performed by the Bank. The judgment states that: “In particular, it does not matter whether the entrepreneur actually used the opportunities that result from the specific wording of the contractual provisions. It is only important that there were no obstacles to take advantage of such rights that could violate the interests of the consumer. (…). The decision is not permitted if it gives the consumer’s contractor the opportunity to act in a manner that blatantly violates the consumer’s interests. Therefore, it was irrelevant for determining the unlawful character of certain contractual arrangements, namely how the defendant bank actually determined the exchange rate to which the loan was indexed.”

The indexation (valorization) clause infringes the consumer’s (credit recipient’s) interests in a gross manner

The District Court indicated that: “in the realities of the present case, there are grounds for considering provisions providing for the indexation of credit for illegal provisions. Such an application results from the assessment of the shape of the provisions, which on the one hand differentiate the exchange rate adopted for converting the loan amount from PLN to CHF, and then the conversion of the required repayment from CHF to PLN, and on the other hand allow the lender to freely determine the amount of each of these rates. The differentiation between the buy and sell rates used to determine the principal balance of the loan and then the repayment amount should be regarded as contrary to good morals and at the same time grossly violating the consumer’s interests.” In the further part of the judgment, we read that: “The defendant’s right to unilaterally regulate the amount of credit installments indexed by CHF exchange rate by determining the Swiss franc’s buy and sell rates and the amount of the so-called the currency spread in the currency exchange tables (the difference between the sell  and buy rate of foreign currency), deprived of the reasons for any influence, undoubtedly violates their interests and is contrary to good morals.”

Conclusions

Above, we presented selected excerpts of the judgment’s justification, which point to the abusiveness of conversion (indexation) clauses. It should be noted that the justification presented relates to a valid judgment, in which the Court allowed the action of credit recipients almost entirely and awarded the number of overpaid installments.

In the next publication, we will also refer to the Court’s deliberations regarding the variable interest rate clause.