NEWSLETTER 04/2007
EFFECTS OF FINDING THAT A COMPANY'S FORM CONTRACTS CONTAIN PROHIBITED TERMS
When forms contracts are used in consumer trade, there are two parties: a consumer and a business. For the business and for the consumer, the judgments of the Court of Competition and Consumer Protection serve as guidelines on what contract clauses will be regarded as abusive. Prohibited clauses, which are published on the website of the Office of Competition and Consumer Protection (www.uokik.gov.pl), should be treated as eliminated form use and thus also as eliminated from a contract that parties may be entering into.
Effects of a finding that clauses in form contracts used by a business are prohibited
Provisions of form contracts used by a business are subject to judicial review by the Court of Competition and Consumer Protection in a proceeding to declare clauses in form contracts as prohibited. This is a proceeding which involves abstract review of the clause, that is, ignoring the context of the specific contract concluded using the form containing the clause. Thus the proceeding is conducted in the collective interest of consumers (in the public interest). A petition may be filed by any potential party to a contract with a business. Consumer protection organizations, consumer advocates and the President of the Office of Competition and Consumer Protection also have standing to file a petition.
Objective effects of a judgment
If a form contract clause held to be prohibited by a judgment of the Court of Competition and Consumer Protection is nonetheless used in a contract with a consumer, it is ineffective, according to some commentators (the dominant view (1), or null and void under Civil Code Art. 58, according to the others (2). Both views nonetheless lead to the same result, namely exclusion of the prohibited clause from legal circulation.
The ban on use of clauses held by the court to be prohibited means that such clauses may not be used in a form contract by a business.
Clauses worded identically to clauses held to be prohibited may nonetheless be individually negotiated in a contract concluded with a consumer, and then - notwithstanding the judgment of the court - should be considered binding on the consumer. It is essential in this regard that instead of a form contract, the parties enter into an agreement individually negotiated at arm's length by both of the parties.
Subjective effects of a judgment
The civil-law regulation of form contracts refers to clauses in contracts entered into with consumers (that is, individuals carrying out a transaction not directly related to their economic or professional activity (3). The parliament was seeking in this respect to eliminate or restrict form contracts accepted by consumers without being aware of what are signing, and to create a system of oversight for form contracts.
From the subjective point of view, then, these judgments of the Court of Competition and Consumer Protection are designed to protect only the interests on consumers. Thus if the court holds that a clause used by a business in a form contract is impermissible, this will have effect only with respect to contracts concluded between a business and consumers.
By the same token, the protection arising under a finding that clauses used by a business are prohibited does not apply to business-to-business legal relations. (4) When they enter into an agreement, they act as two professional entities, who are both equally free to negotiate the terms of the agreement and assess the risk and benefits that may flow from the agreement.
Practical effects of judgment on parties to proceeding
For the parties to a proceeding, the judgment is effective when it becomes legally final - that is, upon issuance of a judgment on appeal, or when the deadline to appeal passes and an appeal is not filed. From that moment forward, use of the prohibited clauses in a form contract will be legally ineffective.
The business must delete clauses found to be prohibited in order to prevent commencement of civil proceedings by consumers in connection with the existence of prohibited clauses in their contracts. The President of the Office of Competition and Consumer Protection will not be able to commence suit on behalf of a consumer, however, or even numerous consumers, because she may not act in the individual interest.
If a business continues to use clauses in form contracts which have been entered in register of prohibited clauses, the President of the Office of Competition and Consumer Protection may issue a decision finding that such practices infringe the collective interests of consumers, and issue a cease-and-desist order. (5) If after issuance of such decision the business does not cease using the prohibited clauses, then the President of the Office of the Competition and Consumer Protection may impose a civil penalty on the business, by way of a decision, (6) in the equivalent of EUR 500 to 10,000 for each day of default in performance of the judicial order, beginning from the date stated in the decision.
Use of an abusive clause entered in the register is also a petty offense, subject to a fine imposed on the person directing the enterprise or authorized to enter into contracts with consumers. (7)
Practical effects of judgment on third parties
Judgments of the Court of Competition and Consumer Protection holding clauses of form contracts to be prohibited enjoy "extended finality"; that is, they are also effective against third parties who did not take part in the proceeding. The effect of such a universal action arises from entry in the register of the clause found to be abusive, rather than - as in relation to the parties to the proceeding - from the time the judgment becomes legally final.
The register of prohibited form contracts clauses is maintained by the President of the Office of Competition and Consumer Protection. Only final judgments that are submitted to the President of the Office of Competition and Consumer Protection by the Court of Competition and Consumer Protection are entered in the register.
Third parties may learn about clauses held to be prohibited by reviewing the register, which is accessible on the Office of Competition and Consumer website.
Inclusion of a clause in the register frees the common courts from the duty to monitor such clauses, and requires them to find such clauses to be ineffective if a specific contract was concluded using a form containing the prohibited clause.
Effects of a judgment on performance of a consumer contract
- If a contract was performed prior to entry of a clause in the register of prohibited clauses by the Court of Competition and Consumer Protection, the other parties to the contract with the business (that is, consumers) may assert claims for damages in connection with use of clauses later held to be prohibited. In such a proceeding, the consumers must prove that they suffered a loss as a result of use of the given clause by the business.
- After entry in the register, it is not possible to reopen a legally finally judgment solely for the reason that the clause on which the claim by the business was based was later entered in the register.
- If the contract is in the course of performance (before and after entry of the clause in the register), consumers have a right to claim damages in connection with use in their case of form contract clauses held to be prohibited. In such proceeding, the consumers must prove that they suffered a loss as a result of the business's use of the given clause. However, the consumer does not need to prove that the clause held by the Court of Competition and Consumer Protection to be prohibited is legally ineffective.
- If the contract is concluded after entry of the clause in the register of clauses held to be prohibited, the prohibited clause will not be legally effective against consumers, even if the business failed to delete it from the form contract.
In the event of a judicial dispute, the existence of a judgment by the Court of Competition and Consumer Protection does not prevent the business form asserting any defences against the consumer, such as the statue of limitations. The business is not able to reopen the legally final finding of the given form contract clauses as prohibited, and allege that they are effective.
Małgorzata Majkowska
attorney-at-law
(1) E.Łętowska & E. Nowińska.
(2) T. Ereciński, in Komentarz do Kodeksu postępowania cywilnego, Cz. I. Postępowanie rozpoznawcze (Commentary on the Civil Procedure Code, Part I: Proceeding on the Merits), Vol. 1, Warsaw 2002, p. 1069); M. Jagielska.
(3) See Civil Code Art. 221.
(4) See Civil Code Art. 431, under which a business means an individual, legal person or organizational unit referred to in Art. 331 § 1, conducting business or professional activity for its own account.
(5) See Art. 23c of the Act on Competition and Consumer Protection.
(6) See Art. 102(1) of the Act on Competition and Consumer Protection.
(7) Petty Offenses Code Art. 138b.
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