As at 31 December 2017,the total amount in litigation where the Bank is the defendant, and litigation (suits) in which other PKO Bank Polski SA Group companies are defendants (suits) was PLN 1 709 million, including PLN 17 million in respect of litigation in the Ukraine (as at 31 December 2016 the total amount of the said litigation was PLN 449 million), and the total amount of litigation (suits) as at 31 December 2017 where the Bank is the plaintiff and litigation where other PKO Bank Polski SA Group companies are plaintiffs was PLN 1 363 millions PLN, including 18 million in respect of litigation in the Ukraine (as at 31 December 2016 the total amount under the said litigation was PLN 1 232 million).
The most significant legal claims of PKO Bank Polski SA and the PKO Bank Polski SA Group entities are described below:
a) Unfair competition proceedings
Proceeding against practices that limit competition in the payments market using payment cards in Poland:
Bank is a party to proceedings initiated by the President of the Competition and Consumer Protection Office (Urząd Ochrony Konkurencji i Konsumentów – UOKiK) on the basis of a decision dated 23 April 2001 upon the request of the Polish Trade and Distribution Organization – Employers Association (Polska Organizacja Handlu i Dystrybucji - Związek Pracodawców - POHiD) against operators of the Visa and Europay payment systems and banks issuing Visa and Europay/ Eurocard/ Mastercard banking cards. The claims under these proceedings relate to the use of practices limiting competition on the market of banking card payments in Poland, consisting of applying pre-agreed ‘interchange’ fees for transactions made using the above cards as well as limiting access to this market for external entities. On 29 December 2006, UOKiK decided that the practices, consisting of joint determination of the ‘interchange’ fee, did limit market competition and ordered that any such practices should be discontinued, and imposed a fine on, among other things, PKO Bank Polski SA, in the amount of PLN 16.6 million.
The Bank appealed against the decision of the President of UOKiK to CCCP (Court for the Competition and Consumer Protection / Sąd Ochrony Konkurencji i Konsumentów – SOKiK). By judgement of 21 November 2013 SOKiK reduced the penalty imposed on the Bank to PLN 10.4 million. On 7 February 2014 the judgement was appealed against on behalf of the Bank and eight plaintiffs represented by the Bank’s attorney. The judgement was also appealed against by other participants to the proceedings, i.e. by the President of the UOKiK and of POHiD (appeals aimed to impose stricter financial penalties on the
participants to the agreements), and: Visa Europe Ltd., Bank Pocztowy S.A., Bank Gospodarki Żywnościowej S.A., mBank S.A., Deutsche Bank PBC S.A., HSBC Bank Polska S.A. (appeals aimed primarily at changing the verdict in respect of the classification of the agreements as violating the competition law, and imposing stricter fines on participants to the agreement). The Court of Appeal in Warsaw in its judgement of 6 October 2015, dismissed the appeal of the banks and Visa Europe Ltd., while accepting the appeal of the UOKiK, and restored the original amount of the imposed penalties stipulated in the decision of the UOKiK, i.e. a penalty in the amount of PLN 16.6 million (penalty imposed on PKO Bank Polski SA) and the penalty in the amount of PLN 4.8 million (penalty imposed on Nordea Bank Polska SA) for which the Bank is the legal successor. The penalties were paid by the Bank in October 2015 (the cost of the respective provision was incurred in previous periods and the amount of the provision was updated depending on the course of the litigation). On 28 April 2016, the Bank filed a cassation complaint along with the other participants in the proceedings. In its judgement of 25 October 2017, the Supreme Court waived the disputed judgement of the Court of Appeal in Warsaw and referred the case for re-consideration by that Court. The date of the appeal hearing was set at 17 April 2018.
Proceedings resulting from a decision of the President of the UOKiK in respect of the possibility of using prohibited contractual provisions in templates of individual agreements (IKE), which was appealed by the Bank to the SOKiK
The proceedings in respect of using prohibited contractual provisions in templates of individual agreements (IKE) was concluded with a final win by the Bank.
On 19 December 2012, the President of UOKiK imposed a fine on the Bank totalling PLN 14.7 million, of which:
1) PLN 7.1 million for not indicating in the IKE agreements the responsibility of the Bank for timely and properly carrying out monetary settlements and the amount of compensation for the delay in the execution of a holder instruction;
2) PLN 4.7 million for application in the template of IKE agreements, an open list of termination conditions;
3) PLN 2.9 million for applying a clause, entered in the register, defining – in respect of disputes with customers – a court with jurisdiction over the registered office of PKO Bank Polski SA’s branch which maintains the IKE deposit account.
The Bank appealed to SOKiK against the decision of the President of UOKiK on 2 January 2013. SOKiK reduced the penalty imposed on the Bank to PLN 4 million by a judgement of 25 November 2014 (in respect of the practices described in points 1 and 2 above; and in respect of the practice described in point 3, the penalty was waived, because the Court stated that the Bank practice did not violate collective interest of consumers).
In January 2015 both the Bank and the President of the UOKiK appealed against the judgement. The Court of Appeal in its judgement of 10 February 2016 dismissed the appeal of the Bank and the appeal of the President of UOKiK. The Bank brought a cassation appeal against this judgement. In its judgement of 8 November 2017, the Supreme Court waived the judgement of the Court of Appeal, and changed the judgement of the SOKiK as well as the decision of the President of UOKiK of 19 December 2012 so that it repealed the provisions of the decision of the President of UOKiK which declared the practices described in points 1 and 2 as violating collective consumers’ interests and provisions relating to the penalty for the aforesaid practices. Moreover, the Supreme Court indicated that the aforesaid judgement was a reformatory judgement, i.e. the UOKiK may not initiate new proceedings in this case (concluded proceedings).
As at 31 December 2017, the Bank was the party to the following proceedings:
Proceedings resulting from a decision of the President of the UOKiK in respect of the suspicion of using prohibited contractual provisions in templates of consumer loan agreements, with the exclusion of credit card agreements, which was appealed by the Bank to the SOKiK
- By decision of 31 December 2013, the Bank's activities were considered to be practices violating the collective interests of consumers and a fine in the amount of PLN 29 million was imposed on the Bank by the President of UOKiK. The Bank appealed against this decision to SOKiK. By judgement of 9 July 2015 SOKiK waived the entire decision of the President of the UOKiK. On 21 August 2015 the President of UOKiK appealed against that judgement. In its judgement of 31 May 2017, the Court of Appeal in Warsaw upheld the SOKiK judgement in respect of waiving point I of the Decisions’ sentence, i.e. determining that the Bank had violated the collective interests of consumers by applying the so-called “variable interest rate clauses”. As a result, the Court of Appeal upheld the judgement on waiving the penalty in the amount of PLN 17 million. In respect of the second alleged prohibited practice (one-day information form), the Court of Appeal accepted UOKiK’s appeal as justified, but only in part. It was stated that the application of a form with one-day “validity” was contrary to the purposes of Directive 2008/48/EC and did not allow consumers to become acquainted with the terms and conditions of a loan and to compare the offers of various banks. The Court of Appeal reduced the penalty levied by UOKiK from PLN 12 million to PLN 6 million. The penalty was repaid in July 2017 (the cost was incurred in the second quarter of 2017). On 23 October 2017, the Bank lodged a cassation appeal against the judgement of the Court of Appeal. On 21 November 2017, a response of the President of the UOKiK to the Bank’s cassation appeal was received. The Bank is awaiting a decision of the Supreme Court on accepting the cassation appeal for consideration.
- Before SOKiK: three proceedings initiated by individuals for:
1) the recognition as abusive and for prohibiting the Bank from using in its trading with customers the provisions in template agreements on loans denominated in CHF, indicating that the currency conversion rules used by the Bank for the purposes of loan payment and for the purposes of conversion of loan instalments as well as provisions concerning interest rates were against good practice and grossly violated consumer interests (proceeding suspended);
2) the recognition as illegal of the provisions in templates of mortgage loan agreement Nordea-Habitat and the surety agreement;
3) the recognition as illegal of the provisions in template mortgage loan agreement “Własny Kąt hipoteczny” relating to the insurance of low initial contribution.
As at 31 December 2017, the Bank did not have a provision for these proceedings, because the probability of unfavourable verdicts was regarded as low.
- Before the President of UOKiK
Three proceedings are pending before the President of UOKiK – two in respect of practices which allegedly violated the consumers’ collective interests and one in respect of regarding the template’s provisions as prohibited:
1) in respect of the alleged practices applied by PKO Bank Polski SA which violate the collective interests of consumers who are party to an agreement for payment services and have access to the electronic banking system, by informing of the proposed changes to the conditions of the agreement for the payment services during its performance exclusively using electronic communications sent through electronic banking channels, which do not constitute a permanent information carrier, and not including in the information appendices in the form of electronic documents (regulations and banking fee and commission tariffs for individuals) sent to consumers on the changes introduced to PKO Bank Polski SA and Inteligo branded products, i.e.: bank accounts and debit cards, credit cards, payment cards, and thus making the verification of the admissibility of changing the conditions of an agreement by consumers impossible. In its pleading of 22 February 2017, the Bank commented on the charges raised by the President of UOKiK and filed an application for an obligating decision referred to in Article 28 of the Act on the competition protection, together with proposed actions aimed at stopping the violation and removing its effects. In its letter of 7 September 2017, (which did not resolve the case), the President of UOKiK informed that he did not anticipate taking into account the Bank’s proposed obligations at the current stage of the proceedings. At the same time, the President of UOKiK indicated that the decision dated 10 May 2017 issued against Credit Agricole Bank Polska S.A. should be an indication for the Bank with regard to, among other things, the method of removing the effects of practices which violated collective consumer interests, the form of consumer benefits, or the position of the President of UOKiK connected with a fixed information carrier under electronic banking. The deadline for concluding the proceedings was extended until 12 June 2018.
2) for regarding the provisions of the agreement template as prohibited due to using in the Bank’s templates, annexes to mortgage loan and advances agreements revalued/ indexed/ denominated in foreign currencies and appendices thereto, which can be regarded as prohibited provisions, referred to in Art. 385 § 1 of the Civil Code. In its letter of 9 August 2017, the Bank commented on the charges raised by the President of UOKiK. In its letter of 24 October 2017, the Bank filed an application for considering evidence in the form of a document – a summary and comparison of CHF, EUR and USD exchange rates applied by the Bank in the period from 3 January 2011 to 31 July 2017 with CHF, EUR and USD announced in the same period by the NBP in its exchange rate table A with regard to the stability of the relation of the Bank’s and NBP exchange rates in the period discussed. In its letter of 15 November 2017, the President of UOKiK called for the Bank to indicate the date on which it started applying the contractual provisions (points 2, 3, 4, 5, 7, 8 and 10) of the appendix to the annex in the template agreements, annexes to mortgage loan and advance agreements revalued/ indexed/ denominated in foreign currencies, which the Bank did in its letter of 30 November 2017. In his letter of 4 December 2017, the President of the UOKiK informed about the extension of the deadline for concluding the proceedings to 31 March 2018. No further steps were taken in this case by the date of approval of these financial statements.
3) in respect of the Bank applying practices which violate collective consumer interests by establishing principal and interest instalments of mortgage-backed loans and advances denominated in foreign currencies, and collecting these instalments from consumers in an amount exceeding the level of the cost of servicing loan exposures on the assumption that there is an increase in the PLN value of the principal loan exposure as a result of the appreciation of the foreign currency against PLN, whereas this level was presented to consumers upon concluding loan/advances agreements as an element of the information on currency risk and was defined as the level of potential increase, which resulted from the initial (arising on the conclusion of the agreement) transfer of the potential currency risk onto the consumer, and which at the same time may violate good practices, and therefore distort borrowers’ behaviour on the market in respect of the aforesaid loans and advances by forcing consumers to repay loan instalments in an unjustified amount and by actually preventing them from earlier repayment, conversion of the loans and advances to another currency, or terminating the aforesaid mortgage loans and advances agreements due to the revaluation of borrowers’ liabilities to a level exceeding the level of potential increase in the cost of loan exposure which was presented upon concluding the agreement – which can constitute unfair market practices referred to in Art. 4 (1) of the Act of 23 August 2007 on countervailing unfair market practices, and at the same time may violate collective consumer interests. The Bank responded to the charges in its letter of 23 September 2017. In his letter of 14 February 2018, the President of UOKiK presented to the Bank a detailed justification for the charges made against the Bank in these proceedings. The President of UOKiK upheld his argumentation presented initially in the decision to initiate the proceedings.
Moreover, there are sixteen explanatory proceedings pending before the President of UOKiK connected with the Bank’s activities (under Art. 49a of the Act on competition and consumers protection).
As at 31 December 2017, the Bank did not set up any provisions for these proceedings.
MEMBERS OF THE GROUP:
As at 31 December 2017, PKO Życie Towarzystwo Ubezpieczeń SA – a subsidiary of the Bank – is a party to:
- two proceedings before SOKiK initiated by individuals for regarding certain provisions of template agreements as prohibited in respect of life insurance agreements.
In all cases the company submitted its responses to suits by applying for dismissing the suits due to the fact that the suits were brought after more than 6 months from the date of ceasing the practices. These cases do not carry the risk of financial penalties for the company. - proceedings connected with the cassation complaint brought by PKO Życie Towarzystwo Ubezpieczeń SA against the judgement of the Court of Appeal due to the financial penalty levied on the company in 2010 by the President of UOKiK for the violation of collective consumer interests (the fine was paid in 2013).
In 2015 the Supreme Court issued a verdict repealing the appealed judgement concerning the amount of the fine and referred the case for reconsideration to the court of second instance. In 2017, after re-consideration of the case by the second instance court and another cassation appeal by the company , the Court of Appeal reduced the fine by PLN 139 thousand. After obtaining written justification for the judgement, the company will decide about any potential further appeals.
At the same time, in 2017 PKO Życie Towarzystwo Ubezpieczeń SA conducted activities connected with:
a) the obliging decision issued in October 2015 by the President of UOKiK, in respect of changes in the fees for earlier resignation stipulated in policies with insurance capital fund;
b) arrangement concluded on 19 December 2016 with the President of UOKiK, under which the conditions of the decision referred to in point a) above were extended to the entire active (as at 1 December 2016) portfolio of insurance products with insurance capital fund held by the company’s customers, and corresponding solutions were adopted for customers who concluded agreements with insurance capital fund after 1 January 2008 when they were aged 61 or more, and the agreements were terminated after the customer’s 65th birthday.
As at 31 December 2017, PKO Życie Towarzystwo Ubezpieczeń SA does not have a provision for an administrative penalty in respect of proceedings relating to products with insurance capital fund (a provision of PLN 8.1 was released in 2015 due to the fact that the obligating decision of the President of UOKiK became final). At the same time, the company maintains provision for damages at a level adequate to the conditions of the obliging decision and the arrangement.
Moreover, in respect of the activities conducted by PKO Bank Polski SA subsidiaries, there are three explanatory proceedings pending before the President of UOKiK and one position of the President of UOKiK presented without initiating proceedings (under Art. 49a of the Act of competition and consumers protection).
b) Re-privatizations claims relating to properties used by the Group
As at the date of these financial statements there are:
1) six proceedings, including three suspended, in respect of the Bank’s properties, relating to declaring invalid the decisions which denied the Bank the right to temporary ownership which would transfer the properties under its administration and on obtaining ex officio right of perpetual usufruct to the land and ownership of the building, return of real property, and regulation of the legal status of the property;
2) fourteen proceedings, including one suspended in respect of real properties of other members of the Bank’s Group, related to declaring the invalidity of administrative decisions or refund of the property.
The Management Board of PKO Bank Polski SA believes that the probability of serious claims against the Group as a result of the aforesaid proceedings is small.
c) Tax disputes
As a result of an unfavourable judgement of the Supreme Administrative Court (NSA – Naczelny Sąd Administracyjny) passed in August 2016 and the ensuing judgements issued on this basis by the Voivodeship Administrative Court (WSA – Wojewódzki Sąd Administracyjny) in Łódź on 10 January, 13 January and 8 February 2017 which dismissed all complaints brought by PKO Leasing SA (legal successor of PKO Bankowy Leasing Sp. z o.o.) in respect of crediting surpluses and refunds against outstanding VAT, as at 31 December 2017 the PKO Leasing SA Group disclosed outstanding VAT totalling PLN 21.1 million, fully written down. Interest payable on the outstanding VAT claimed before administrative courts results from decisions of the Tax Office in Łódź in respect of settling surpluses and refunds of VAT for settlement periods from January 2011 to June 2013 against outstanding VAT in which the settlement of refunds and surpluses of VAT against outstanding VAT was performed at the date of filing correcting VAT returns (in December 2014), and not at the date of the payment of the tax in an amount higher than the amount due, as was argued by the company.
In 2017, PKO Leasing SA continued appeal proceedings against the decisions of the tax authorities. On 7 April 2017, the company filed a cassation appeal against the WSA’s judgement in respect of crediting refund of VAT of PLN 20.8 million resulting from its tax return for February 2011 against outstanding VAT for January 2011. Moreover, on 25 July 2017, the company filed a complaint to the WSA against the decision of the Director of the Fiscal Administration Chamber (Izba Administracji Podatkowej) in Łódź, issued in the performance of the aforesaid WSA and NSA judgements, relating to the manner of settling the payment made on 7 January 2015 against outstanding amounts due for various settlement periods from January 2011 to June 2013. On 7 November 2017, the WSA waived the disputed decision and awarded the reimbursement of the costs of the court proceedings. The judgement is not yet valid. The Director of the Fiscal Administration Chamber in Łódź filed a cassation complaint against the WSA’s judgement. The company is awaiting the date of the hearing before the NSA. The Company also continued other appeal steps available under the law, among others, in respect of the correction of tax returns for the periods of January and February 2011. With regard to the corrections of tax returns, the company is in dispute with the Tax Office in Łódź with regard to the Office’s decision on regarding the corrections of VAT returns for January and February 2011 as ineffective. On 23 August 2017, the WSA passed a judgement in response to the company’s complaint against a notification regarding the corrections for January and February 2011 as ineffective, and dismissed the complaint arguing that such form is not available for taxpayers in the case of notifications. On 23 October 2017, the company filed a cassation complaint against this judgement. The company is awaiting the date of the hearing before the NSA. There were no changes in the status of the case by 31 December 2017.