Anna Grygo

How long is a bank liable for the act of an employee?

If bank staff commit an offence to the detriment of a bank customer, the bank is liable for failure to supervise the employee.

The statute of limitations for seeking damages from the bank is 3 years, but the defence that a claim is time-barred may not always be effective.

The Polish Supreme Court issued an interesting ruling recently concerning a bank’s liability for the act of an employee (Case No. IV CSK 146/10).

A customer entered into a brokerage services agreement with a bank-affiliated brokerage and gave the brokerage an in blanco power of attorney to represent the customer in connection with the securities account. A member of the bank staff working at the brokerage office used the power of attorney to transfer the client’s funds to his own account. He later explained that he intended to invest the money on the stock market, and then after making a profit would restore the full amount taken to the customer’s account. In fact he returned less than 20% of the funds. The bank employee did the same thing with funds of other customers.

The customer then filed a claim for damages against the bank, in the amount of the funds that the employee failed to pay back. The claim, based on a tort theory, was filed 9 years after the money was taken from the customer’s account.

The bank asserted the defence that the claim was time-barred, but the courts of first and second instance held that it was not because the statute of limitations was 10 years.

In its cassation appeal, the bank relied on the Supreme Court judgment issued on 19 November 2009 (Case No. IV CSK 257/09) in a case under similar facts. The court held in that case that in such a situation the bank is liable for its own act or omission, that is, failure to supervise its employee properly, and not for the offence committed by the employee. The court found that what the bank had done was to condone the criminal conduct by the employee, and thus the customer’s loss could not be regarded as resulting from the crime. Under the Civil Code, a claim for damages expires 3 years after the date when the plaintiff learned of the injury and the identity of the person liable to make up the loss.

However, the 2009 ruling was inconsistent with an earlier ruling by the Supreme Court, issued under almost identical facts, in which the court held that in such a case, the injury resulted from a crime and thus under the Civil Code the statute of limitations was 10 years (Supreme Court judgment dated 16 January 2008, Case No. IV CSK 380/07). This was the ruling relied on by the customer in the current case.

In the current case the Supreme Court followed the holding from 2009. The court vacated the judgment in favour of the customer and remanded the case for rehearing. The Supreme Court nonetheless stressed that upon rehearing, the lower court must consider whether to disallow the defence of the statute of limitations under broader principles of public policy (Civil Code Art. 5).