As at 31 December 2016, the total amount in litigation where the Bank is the defendant, and litigation in which other PKO Bank Polski SA Group companies are defendants (suits) was PLN 448.7 million, including PLN 43.8 million in respect of litigation in Ukraine (as at 31 December 2015 the total amount of the said litigations was PLN 638 million), and the total amount of litigations (suits) as at 31 December 2016 where the Bank is the plaintiff and litigations where other PKO Bank Polski SA Group companies are plaintiffs was PLN 1 232.3 million, including PLN 42.2 million in respect of litigations in Ukraine (as at 31 December 2015 the total amount under the said litigations was PLN 697 million).
The most significant legal claims of the PKO Bank Polski SA and the PKO Bank Polski SA Group entities are described below:
a) Unfair competition proceeding
Proceeding against practices that limit competition in the payments market using payment cards in Poland:
The Bank is a party to proceeding initiated by 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) against the operators of the Visa and Europay payment systems and the 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 mentioned above cards as well as limiting access to this market by external entities. On 29 December 2006, UOKiK decided that the practices, consisting of joint establishment of ‘interchange’ fee, did limit market competition and ordered that any such practices should be discontinued, and imposed a fine on, i.a., 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) and on 20 December 2011 a hearing was held during which no factual resolution of the appeals was reached. The SOKiK obligated MasterCard to submit explanations concerning the issue and scheduled the date of the next meeting for 9 February 2012. The date was postponed for 24 April 2012, and next SOKiK postponed announcing the court’s decision on request for suspension until 8 May 2012. On 8 May 2012, SOKiK suspended proceedings until the final conclusion of proceedings before the European Union Court in the case MasterCard against the European Commission. On 24 May 2012, the European Union Court upheld the decision of the European Commission banning multilaterally agreed ‘interchange’ fees applied by MasterCard. On 28 May 2012 the participant to the proceedings, Visa Europe Ltd, and on 29 May 2012 the plaintiffs’ attorney, including PKO Bank Polski SA, filed a complaint against the decision of SOKiK dated 8 May 2012. In August 2012, the European Court of Justice received the appeal of MasterCard against the verdict of the EU Court of 24 May 2012 rejecting the appeal of mentioned above. On 25 October 2012, the Court of Appeal in Warsaw changed the decision of 8 May 2012 and dismissed the motion of MasterCard for suspending the proceedings. By judgment of 21 November 2013 SOKiK reduced the penalty imposed on the Bank to the amount of PLN 10.4 million. On 7 February 2014 the judgment was appealed on behalf of the Bank and eight plaintiffs represented by the Bank’s attorney. The judgment was also appealed by other participants of the proceedings, i.e. by the President of the Competition and Consumer Protection Office (UOKiK) and of the Polish Trade and Distribution Organization (POHiD) (appeals aimed to impose on the participants of the agreements stricter financial penalties), and: Visa Europe Ltd., Bank Pocztowy S.A., Bank Gospodarki Żywnościowej S.A., mBank S.A. (formerly: BRE Bank S.A.), Deutsche Bank PBC S.A., HSBC Bank Polska S.A. (appeals aimed at imposing more strict fines on participants to the agreement). The Court of Appeal in Warsaw in its verdict of 6 October 2015, dismissed the appeal of banks and Visa, while the appeal of the UOKiK. The Court restored the original amount of the imposed penalties stipulated in the decision of the UOKiK, i.e. the penalty in the amount of PLN 16.6 million – penalty imposed on PKO Bank Polski and the penalty in the amount of PLN 4.8 million (penalty imposed on Nordea Bank Polska SA). The penalties were paid by the Bank in October 2015. On 28 April 2016, the Bank filed a cassation complaint along with the other participants in the proceedings. On 28 November 2016, the Bank’s plenipotentiary filed an application for filing a pleading with a respective statement of grounds and a pleading. By decision dated 5 December 2016, the Supreme Court allowed the Bank to file the pleading. The hearing before the Supreme Court has not yet been scheduled.
As at 31 December 2016 the Bank is also a party to i.a. following proceedings:
- before the Court of Appel – as a result of an appeal from the verdict of SOKiK issued in result of the complaint from the President of UOKiK due to suspicion of using of unfair contractual provisions in forms of consumer loan agreements, with the exclusion of credit card agreements.
By decision of 31 December 2013, the Bank's activities were considered as practices violating collective interests of consumers and a fine in the amount of PLN 29 million was imposed on the Bank. The Bank appealed against this decision. By judgment of 9 July 2015 SOKiK fully annulled the decision of the President of the UOKiK. On 28 August 2015 the President of UOKiK appealed against that judgment. On 11 September 2015 the Bank responded to the appeal rejecting the allegations of the President of the UOKiK. No trial date has been set. By a decision of 22 November 2016, the Court of Appeal suspended the proceedings. As at 31 December 2016 the Bank had no provision due to this proceeding.
- initiated by Bank - at the conclusion of the appeal proceeding brought by the Bank to SOKiK against the decision of the president of UOKiK in connection with the use of unfair contractual terms in templates of individual contracts (IKE)
On 19 December 2012, the President of UOKiK imposed a fine on the Bank in a total amount of PLN 14.7 million, of which:
- PLN 7.1 million for not indicating in the IKE agreements responsibilities of the Bank for timely and proper carrying out the monetary settlements and compensation for the delay in execution of a holder instruction;
- PLN 4.7 million for application in the form of IKE agreements, an open list of termination conditions;
- PLN 2.9 million for application a clause, entered in the register, defining for disputes with customers a court with jurisdiction over the seat of PKO Bank Polski SA’s branch, carrying the IKE deposit account.
The Bank appealed against the decision of the President of UOKiK on 2 January 2013. SOKiK reduced the penalty imposed on the Bank to the amount of PLN 4 million by the court judgement of 25 November 2014, as regards to:
- the practice described in the point 1 above, it reduced the penalty to the amount of PLN 2.5 million,
- the practice described in the point 2 above, it reduced the penalty to the amount of PLN 1.5 million,
- the practice described in the point 3 above, the penalty was repealed, as the Court considered that the practice of the Bank did not violate collective interests of consumers.
In January 2015 both the Bank and the President of the UOKiK appealed against the judgment. The Court of Appeal in its judgment of 10 February 2016 dismissed the appeal of the Bank and the appeal of the President of UOKiK. Since the judgment is final, the Bank paid a fine in the amount of PLN 4 million on 23 February 2016 year. On 26 September of 2016 bank appealed a cassation complaint to the Supreme Court. The case is pending.
- before SOKiK (Court of Competition and Consumer Protection) seven proceedings instituted by individuals:
- on the recognition as abusive and prohibiting the respondent from using in trading with customers the provisions in forms of agreements for loans denominated in CHF, indicating that the currency conversion rules used by the Bank for the purpose of loan payment and for the purpose of conversion of instalments as well as decisions concerning the amount of interest rate were against good practice and highly violated consumer interest (proceeding suspended),
- to establish invalidity of the clauses contained in the mortgage loan agreement by regarding them as illegal (non-existent) and prohibiting the Bank from using in trading with customers the provisions in forms of agreements used by the defendant in the exercising economic activity,
- for recognition as illegal of the provisions in forms of mortgage loan agreement Nordea - Habitat and the surety agreement,
- for recognition as illegal of the provisions of a standard loan agreement. Plaintiff (appraiser) accuses the Bank that it only accepts real estate valuations prepared by designated appraisers which seriously violates the interests of consumers by imposing on consumers, as the weaker party to the contract, onerous conditions by eliminating the right to obtain the valuation services from the chosen company,
- for recognition as illegal of the provisions in forms of mortgage loan agreement product Własny Kąt hipoteczny;
- 6) for recognition as illegal of the provisions related to low downpayment insurance of mortgage loan Własny Kąt hipoteczny repaid in annuity granted instalments in PLN,
- 7) for recognition as illegal of the provisions of a standard agreement (A Policy for Issuing and Using Credit Cards and a Table of fees and commissions in respect of reminders and phone call intervention relating to delays in the repayment of debt, which, in the plaintiff’s opinion, are against good practices and severely violate consumer interests)
As at 31 December 2016 the Group had no provisions for above-mentioned proceeding due to the fact, that the justify probability of unfavourable result of these proceedings is assessed as remote.
- before the President of UOKiK
Two proceedings are in progress before the President of the Office of Competition and Consumer Protection (UOKiK) on PKO Bank Polski SA’s practices which allegedly violated the consumers’ collective interests:
- proceedings instigated ex officio by the President of the Office of Competition and Consumer Protection (UOKiK) on applying practices which violate collective consumers’ interests by PKO Bank Polski SA. The practices consisted of informing in marketing communications and conditioning the exemption of consumers from paying monthly fees for servicing debit cards on settling cashless transactions using the card (a quota or number limit) in the period for which the monthly fee for the card is collected, when the settlement of the cashless transactions in the said period does not depend on the consumer, but on receiving the settlement of the transactions by the Bank from the settlement agent. The decision to instigate proceedings against the Bank was delivered to the Bank on 4 January 2017. In the letter dated 3 March 2017 addressed to the President of UOKiK the Bank’s plenipotentiary signaled that the Bank will apply for the consent decree referred to in Article 28 of the Act on protection of competition and consumers;
- the proceedings instigated ex officio by the President of UOKiK 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 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 admissibility of changing the conditions of an agreement by consumers impossible. The decision to instigate proceedings against the Bank was delivered to the Bank on 17 October 2016. The Bank’s position on the case is being prepared.
Moreover, there are twelve investigation procedures pending before the President of UOKiK, relating to the Bank’s activities and one contact by the President of UOKiK without instituting proceedings (in accordance with Article 49a of the Act on Competition and Consumer Protection).
As at 31 December 2016 PKO Życie Towarzystwo Ubezpieczeń SA – a subsidiary of the Bank – is a party to:
1. six proceedings before SOKiK initiated by individuals to determine some of provisions in the forms of life insurance agreements to be illegal.
In all cases PKO Życie responded to the lawsuit and applied for its dismiss due to bringing legal action after 6 months since the day of giving up their application; in these cases there is no risk of imposing financial penalty on the Company,
2. proceeding connected to the cassation complaint brought by PKO Życie Towarzystwo Ubezpieczeń SA against the judgment of the Court of Appeal in relation to the fine imposed on the Company in 2010 by the President of UOKiK for the violation of the collective interests of consumers by the Company (fine was paid in 2013).
The Supreme Court issued in 2015 the verdict repealing the appealed judgment concerning the amount of the fine and referred the case for reconsideration to the court of second instance. The second instance upheld its previous position not taking into account the guidelines of the Supreme Court. PKO Życie Towarzystwo Ubezpieczeń SA made another cassation complaint to the Supreme Court.
At the same time in 2016 PKO Życie Towarzystwo Ubezpieczeń SA implemented the obligations resulting from the decision, made in October 2015 by the President of UOKiK, regarding amendments to 25 forms of insurance agreements with insurance capital funds, concerning surrender fees. The Company's liability resulting from the above-mentioned decision consist in particular with regard to these 25 forms:
a) surrender fees incurred by the existing customers for insurance with regular premium will not be higher than 25% of the value of premiums paid, and 4% in the case of contracts with one-off premium,
b) the Company will provide consumers with a proposal of an annex to the contract of insurance, or equivalent agreement,
c) the Company will inform customers about the availability of new conditions through the website, applications for customers and directly customer - every time the customer indicates that it intends to terminate the contract.
The Company implemented the obligations resulted from the decision til 17 May 2016. On 12 August 2016 the Company submitted to the President of UOKiK report of the implementation of the obligations arising from the decision. The decision does not exhaust the possibility of a pursuing by the existing customers of their rights through civil law issued for particular insurance companies.
In the third quarter of 2016 the insurance industry within Polska Izba Ubezpieczeń (PIU) took the initiative to develop with UOKiK and PFSA compromise solution about regulating issue concerning fees from insurance capital fund products to support clients currently not covered with decisions issued by the President of UOKiK to particular insurance companies without changing the law.
As a result of the arrangements referred to above, on 19 December 2016 PKO Życie Towarzystwo Ubezpieczeń SA concluded an agreement with the President of the UOKiK under which the terms and conditions of the UOKiK decision described above was extended to the whole active (as at 1 December 2016) portfolio of insurance products with insurance capital funds held by the Company’s customers, and analogous solutions were adopted for customers who concluded insurance contracts with insurance capital funds after 1 January 2008, who were more than 61 years old and whose contracts were terminated after they turned 65.
Similar agreements were concluded with the President of UOKiK by 15 other insurance companies.
As at 31 December 2016, PKO Życie Towarzystwo Ubezpieczeń SA does not have a provision for administrative penalties in respect of proceedings relating to insurance products with an insurance capital fund (a provision of PLN 8.1 million in connection with the consent decree of the President of the UOKiK becoming final and binding was released in 2015). At the same time, the Company maintains an adequate (in respect of the consent decree and the agreement) level of claims provisions.
In 2016 the Group’s entities (other than PKO Bank Polski SA) were the parts to three proceedings conducted by the President of UOKiK related to advertising used by insurers for the sale of life insurance contracts with insurance capital funds, mortgage loan-related research and market research about investment products for customers.
b) Re-privatizations claims relating to properties held by the Group
As at the date of these financial statements there are:
- twelve administrative proceedings, of which five are suspended, in relation to properties owned by the Bank, regarding: the invalidation of administrative decisions refusing to grant the right to temporary ownership, giving the property under management and on acquisition in accordance with law the perpetual usufruct of land and ownership title to the building, the return of the property, remuneration for property usage without contractual basis as well as regulation of legal status of the properties.
- fourteen proceedings, of which one is suspended, in relation to properties of other Group entities, regarding the invalidation of administrative decisions or return of the property.
In the opinion of the Management Board of PKO Bank Polski SA the probability of significant claims against the Bank in relation to the above mentioned proceedings is remote.