Banks lose privileges
Until now, it has been distinctly easier for banks in Poland to secure and later enforce their receivables than for other creditors. Will a new amendment to the Banking Law change this?
On 19 April 2013, the Sejm adopted an act amending the Banking Law and the Investment Funds Act. The Sejm later rejected revisions proposed by the Senate and submitted the bill to the President of Poland, who signed it into law on 18 June 2013. It goes into effect 14 days after publication.
The act added a new par. 1a to Art. 95 of the Banking Law—a seemingly small change, but one with an immense impact on the position of banks in a judicial dispute with their debtors.
The existing Art. 95(1) of the Banking Law provides that bank statements and certain other bank documents signed by authorised representatives of a bank and bearing the seal of the bank have the legal force of an official document and may be used, for example, as grounds for entry in the land and mortgage register. Art. 95(3) provides, in turn, that such bank documents shall be the basis for entry of a mortgage securing the bank’s claims against its debtor. The new Art. 95(1a) provides, however: “The legal force of official documents referred to in par. 1 shall not apply with respect to the documents referred to in such provision in a civil proceeding.”
It should be pointed out by way of introduction that the amendment to the Banking Law was adopted in order to bring the law into compliance with the judgment of the Polish Constitutional Tribunal of 15 March 2011 (Case No. P 7/09), which held that Banking Law Art. 95 was inconsistent with Art. 2, 32(1) and 76 of the Polish Constitution insofar as it gave the legal force of an official document to a bank’s accounting records and bank statements with respect to the rights and obligations arising out of banking activities, in a civil proceeding against a consumer (a judgment we discussed previously in the Litigation Portal).
While a thorough analysis of the reasoning of the Constitutional Tribunal and its correctness is beyond the scope of this article, it must be pointed out that the amendment adopted by the Sejm went well beyond the scope of necessary changes to the law required by the judgment of the Constitutional Tribunal, because the amendment excludes the force of an official document for bank documents in any civil proceeding—not only a proceeding against a consumer, but also against other legal entities, such as businesses.
While no one seems to dispute the need for solutions expediting civil proceedings, particularly for businesses, the amendment in question eliminates legal instruments which effectively served to expedite court cases. Moreover, the changes reveal a certain inconsistency.
Apart from far-reaching consequences for commercial practice, the amendment will probably generate problems in interpretation.
The first problem that is raised involves the ability to establish a mortgage on the basis of bank documents. A proceeding before the land and mortgage register court is a non-adversarial proceeding under property law, which means that it is undoubtedly a type of civil proceeding. Thus an analysis of the new Art. 95(1a) suggests that bank documents on the basis of which a mortgage is established for a bank are deprived of the legal force of an official document in a land and mortgage register proceeding. Consequently, it would appear that Polish banks will be required to use the form of a notarial deed in order to establish a valid mortgage on their behalf. But before reaching that conclusion, it must be considered that the existing par. 3–5 of Art. 95, which govern the procedure for establishing a mortgage on the basis of bank documents, were left unchanged. A reading of the amended Art. 95 leads one to conclude that the Sejm fell into a kind of legislative dissonance. If creation of a bank mortgage now requires a notarial deed, then the existing Art. 95(3)–(5) should have been repealed. That, at least, should be concluded if one assumes that the legislature was acting rationally.
One defensible interpretation is that the intention of the drafters was not to eliminate the ability to establish a mortgage in favour of a bank on the basis of bank documents, without the need for the owner of the encumbered real estate to submit a statement establishing the mortgage in the form of a notarial deed, but only a statement in writing.
This is the impression given by the justification for the bill (Sejm Document No. 605 of 12 June 2012), which does not mention the procedure for establishing a mortgage for a bank under Banking Law Art. 95. The justification focuses only on carrying out the recommendations of the Constitutional Tribunal, stressing the need to eliminate the evidentiary privileges of banks and the reversed burden of proof in favour of banks. The bill thus sought to eliminate the privileged position of banks in civil proceedings, as a stronger, dominant party in relation to other entities, including business entities. The amendment provides that bank documents generally do not have the force of official documents in a civil proceeding, but at the same includes an exception to this rule for bank documents necessary to establish a mortgage securing the bank’s claims against the debtor.
This appears to be the only logical interpretation of Art. 95 in its amended form which is justified both systemically and functionally. After all, the purpose of the amendment (drawn primarily from the justification for the judgment of the Constitutional Tribunal, whose implementation was the occasion for the amendment) is primarily to protect other entities in a judicial dispute with a bank—not to eliminate the simplified procedure for establishment of mortgages for banks.
Our doubts concerning interpretation are reflected in the wording of the bill as submitted to the Sejm by the Senate on 15 June 2012 (i.e. the original wording, subsequently revised by the Sejm as requested by the Public Finance Committee), and in the wording of the revisions requested by the Senate in its resolution of 16 May 2013. It is amazing that intentionally, on two occasions, a phrase was deleted from the bill during the legislative process which expressly reserved the ability to use a bank document to make an entry in the land and mortgage register, even though the bank document had lost the legal force of an official document in a civil proceeding. In an opinion on the bill, the Senate Legislative Office again confirmed the existence of the interpretational controversy discussed above: “It must be stressed that the regulation adopted in the Senate proposal, despite depriving documents of banks and securitisation funds of the force of official documents regardless of the type of proceeding, nonetheless provided that such documents will continue to serve as the basis for making entries in the land and mortgage register. The current wording of the bill in question appears not to provide for an exception in this regard.”
In summary, it should be concluded that the simplified procedure for establishment of a bank mortgage nonetheless will remain unchanged after entry into force of this amendment. Yet it is disappointing that the Parliament has once more enacted imprecise regulations, sowing the seeds for uncertainty in interpretation.
This amendment to the Banking Law is only one aspect of a noticeable recent trend toward elimination of privileges for banks. The notion of eliminating bank writs of execution (as we already reported) also fits into this trend. Currently work is underway in this respect in the parliamentary Subcommittee for Financial Institutions. This work is also directly connected with the Constitutional Tribunal judgment which was the impetus for amending Banking Law Art. 95. In pushing through these changes, however, the need and purpose for such changes should be considered, as well as the multifaceted ramifications such changes may have on commercial dealings in Poland.
Marcin Smolarek, Mateusz Tusznio and Paweł Szalon, Banking & Finance Practice, Wardyński & Partners