NEWSLETTER 18/2010
Commentary
SETOFF OF CLAIMS IN DIFFERENT CURRENCIES UNDER POLISH LAW
Setoff is one of the ways that a debtor can satisfy a claim. If the right of setoff was not excluded in the parties' contract and the conditions for the setoff are met, setoff lies within the discretion of the debtor.
The question arises under Polish law whether a claim in a foreign currency may be set off, and if so, which claim, in what currency, and at what rate it should be converted.
Contractual setoff
Setoff is possible when both claims are monetary. Polish law does not require that the claims be in the same currency, and thus the possibility of setting off claims in different currencies is not ruled out. Therefore, if both parties agree on the possibility of setoff, and mutually establish the date for making the conversion and indicate which claim is to be converted to which currency, then there is nothing preventing the debtor from satisfying a claim (in foreign currency or Polish currency) by making a setoff.
Statutory setoff
The situation becomes more complicated if there is no agreement, and creditor A (whose claim is in Polish zloty) is presented with a claim in foreign currency for setoff by its debtor, creditor B; or, the other way around, if creditor A wants to set off its claim in Polish zloty against creditor B's claim in foreign currency. Who then, if anyone, is required to convert its claim into another currency, and which currency: that of the claim set off or the claim presented for setoff? Or is a currency conversion impermissible without agreement by the parties?
a) Polish currency rule
A legislative solution to this legal puzzle is provided by the Polish currency rule. Following an amendment to Civil Code Art. 358 which went into effect on 24 January 2009, it is clear that now, under Polish civil law, a debtor has the right to perform an obligation in Polish currency in a case where the obligation calls for payment of a sum expressed in foreign currency, unless there is a requirement - under a statute, a court order that is the source of the obligation, or a legal act - that the payment must be made in foreign currency. A debtor who elects to perform an obligation in Polish currency must establish the value of the foreign currency at the exchange rate for the date when the claim became due and payable, unless the parties have agreed to set a different date for determining the exchange rate. The rule allowing allowing the debtor to elect the currency is excluded only if the debtor is in default. Then creditor, not the debtor, decides the currency in which the obligation is to be performed.
b) setoff of claim expressed in Polish currency
In a case where payment is sought by a creditor holding a claim in foreign currency, the debtor may present for setoff a claim that is holds in Polish currency. Since the debtor could pay the claim in Polish currency, there is no reason for the debtor to be denied the freedom to elect the currency when the obligation is performed by way of setoff. In this instatnce, the claim in foreign currency is converted into Polish zloty at the exchange rate from the date the claim becomes due and payable, and the claim thus converted is then subject to setoff against the claim in Polish zloty.
c) setoff of claim expressed in foreign currency
The situation is different when a claim in foreign currency is presented for setoff. Then it is apparently impossible to set off such claim against the claim in Polish currency. In such case, the creditor presenting a claim in foreign currency for the setoff does not have the right to elect the currency in which the obligation is performed, and thus may not demand payment in Polish currency or convert the foreign currency into Polish zloty. There is no legal rule that would authorize the creditor (unless the debtor is in default) to make a unilateral conversion of its foreign currency claim into Polish currency, against the wishes of the debtor. There is also no rule under the civil law that would authorize the creditor to convert its own debt in Polish zloty into the other currency. Without a relevant contractual provision, an obligation in Polish zloty may not be paid in foreign currency.
Because the creditor is not authorized to convert the currency of the claim presented to it for setoff, and there is no requirement to convert its own claim, without the mutual consent of both creditors it is not possible to express both claims in the same currency. As a result, the event of presentation of a claim in foreign currency for setoff against a claim in Polish zloty, it is not possible to extinguish the two claims by setoff.
Unequal position of creditors holding claims in different currencies
Under Civil Code Art. 358 the position of the creditors depends on the currency in which their claims are expressed. The creditor holding a claim in Polish currency may always obtain payment. The creditor holding a claim in foreign currency may be satisfied by way of setoff.
Whether this way was the purpose of the amendment, or an unintended coincidence, is an issue that warrants further inquiry.
In any event, the wording of Civil Code Art. 358 leads to the conclusion that the position of the creditors is unequal, and a creditor holding a claim in Polish zloty is protected from setoff against a claim in foreign currency.
Katarzyna Leśniak
attorney-at-law
The Newsletter is published free-pf-charge and is designed chiefly for clients of the law firm of Mikulski & Partners. The articles are written by lawyers at the firm, but do not constitute legal advice.