9. 7. 2018

Supreme Court annuls judgment on Swiss franc-denominated loans

In its ruling No. II Ips 201/2017 dated 7 May 2018 the Supreme Court of the Republic of Slovenia ruled that the claim of a plaintiff (a natural person), who was in dispute with the bank and sought (inter alia) annulment of a Swiss franc-denominated loan, is unfounded. The Supreme Court explained that the conclusion of a loan denominated in a foreign currency was not illegal, that the basis of the transaction was not inadmissible and that it was not a usurious transaction.

The Supreme Court did agree with the plaintiff that the courts of first and second instance failed to properly investigate whether the bank had fulfilled its obligations regarding its explanatory duty. In this regard, the Supreme Court considered that the explanatory duty of the bank regarding the existence of currency risk was not exhausted merely by including a contract provision that the plaintiff was aware of the currency risk. An essential feature of a loan denominated in a foreign currency is that if a significant devaluation of the domestic currency occurs, the borrower's credit load could be substantially increased. Since the bank acted as an expert in the banking field in advising and concluding a contract and the plaintiff as a layperson, the explanatory duty of the bank was even greater. Professional diligence thus required the bank to provide information in such a way that the plaintiff could fully understand the economic effects of the change in the exchange rate to the amount of its monthly liabilities converted into the domestic currency.

The Supreme Court also ruled that if the first instance court finds that the bank failed to properly fulfil its explanatory duties, the first instance court must assess the unfairness of the contractual clause regarding currency and whether such clause is in line with the guidelines of the Court of Justice of the European Union. Only where the bank failed to fulfil the explanatory duty and that the contractual clause was at the same time considered as an unfair contractual clause (i.e. that the bank acted in bad faith and that there was a significant imbalance between the rights and obligations of the parties) the court of first instance must find that the contractual clause and / or the whole contract was null and thus void.

The Supreme Court ruling means that not all Swiss franc-denominated loans or those denominated in other foreign currencies can be considered as automatically null and void, rather the court must in each specific case assess whether the bank has correctly fulfilled its explanatory duty and whether the contractual terms in each individual case can be declared as dishonest.
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