Another success in court. A landmark ruling in the dispute with the Province Fund for Environmental Protection and Water Management
Andersen in Poland successfully represented a client (a company operating in the waste management sector) in a lawsuit brought against one of the Province Funds for Environmental Protection and Water Management (WFOŚiGW).
Given the subject matter of the dispute and the infrequency of legal disputes with WFOŚiGW, the statements made in the written grounds for the ruling (the case was closed with a final judgement of the court of first instance) are of considerable importance for companies (especially those operating in the waste management sector) receiving public aid from WFOŚiGW.
The company concluded a loan agreement with the Fund for expansion of a municipal facility (formerly: RIPOK – Regional Waste Processing Facility). Repayment of the loan was secured by a number of collaterals (mortgage, blank promissory notes, deposit). After several years of loan repayment, the Company decided to make an early payment of the remaining portion of the loan early in order to have the collaterals released. Despite the early repayment, the Fund did not agree to the release of the collaterals. The Fund claimed that the Company was not entitled to make the early repayment without the Fund’s consent (according to the interpretation made by the Fund of the wording of the loan agreement), which the Fund did not grant. The Fund informed the Company that the collateral would be released upon payment of interest on the entire loan in accordance with the schedule attached to the loan agreement (i.e. all interest until the last payment, as scheduled, despite the early repayment).
The Company paid the requested amount of interest (making a reservation that the payment should be refunded) and subsequently claimed the money back from the Fund by bringing a lawsuit to recover the undue payment.
The Fund defended its claim by providing the following arguments:
- Under the loan agreement, an early repayment was possible only with the consent of the Fund, which the Fund did not give.
- The repayment term of the loan was established for the benefit of both parties.
- The Fund is a public institution with public funds at its disposal, so it could not waive the interest for the use of the principal throughout the period indicated in the repayment schedule; moreover, the interest rate on the loan was lower than the market rate.
- The Company was not entitled to recover the amount paid because, since it claimed that it was not obliged to pay all the interest, it knew that it had no obligation to make the payment.
The court granted the claim to the Company in its entirety and in the written reasons for the ruling (in which it essentially shared all arguments of the lawsuit) it pointed out that:
- The loan agreement did not make early repayment of the loan conditional on the Fund’s consent (the Fund misinterpreted the contractual provision on which it relied), so early repayment of the loan was not excluded by the parties.
- Doubts regarding the meaning of the contractual provision which the Fund relied upon must be resolved against the party that drafted the contract (the loan agreement was drafted by the Fund).
- The term for repayment of the loan was reserved for the benefit of the debtor (the Company). It is assumed that the term for repayment is reserved for the benefit of both parties in the case of loans granted by professional lenders in the course of their business activities (banks, pawnbrokers, etc.). The fund is not such an entity (the purpose of the fund’s operation is not to make profit from the granting loans, but to provide public support and assistance, which is manifested, among other things, in the interest rates on loans, which are lower than market rates).
- The assumption that the loan agreement imposes an obligation on the Company to repay interest on the principal in the period following the loan repayment should be assessed in view of Article 58 of the Civil Code:
- this would be contrary to the principles of social coexistence (the Fund, as a public body, is supposed to support the entities that use its financing and not to make a profit),
- payment of remuneration for the use of the capital (interest on the capital) when such use has stopped (as a result of repayment of the full amount of the loan) would be contrary to the nature of the loan agreement.
- Having received the full amount of the loan (as a result of the early repayment thereof), the Fund could use the funds to pursue its statutory objectives, including the granting of further loans.
- The payment which the Company claimed through court was an undue payment, if only for the fact that the Company reserved the right to have it refunded (by indicating this in the reason for the transfer). In addition, the fact that the Company paid the interest because the Fund refused to release the collateral until the interest was paid could be considered as acting under duress.
The case was managed by Dawid Mielcarski, Advocate, Andersen Partner, and Klaudia Raczek, Manager in Andersen