With this post, I begin a new series - an authoritative review of court case law on factoring. I will post cyclical reviews probably every six months. I will select for you rulings that should be considered relevant and interesting from the point of view of the factoring industry. I start with the rulings issued in the first half of 2018.
Judgment of the Court of Appeals in Katowice on 13.04.2018 (I ACa 1059/17) -> effectiveness of order cancellation against the factor (annihilation of the claim)
The above judgment should serve as a warning to the factoring industry. It raises the issue of the typical factor's risk of annihilation of the claim by the debtor in agreement with the factor - behind the factor's back. In the case in question, this occurred in the form of cancellation of the order and issuance of a correction invoice for the entire value of the order of about PLN 124,000. At the same time, the factor neglected to notify the factor of the correction, despite the fact that it had previously obtained financing (advance payment) for the original value of the invoice. Such a construction takes the form of a civil dispute, and often a factoring fraud. The factor lost this case against the debtor (recipient). In the opinion of the Court of Appeals, the debtor cannot bear the legal consequences of the factor's omissions, and hence is not liable for payment of the adjusted invoice purchased by the factor. "The nail in the coffin" for the factor was the Court's recognition that the claimant's claim does not deserve recognition also on the grounds that it is contrary to the principles of social intercourse. The ruling clearly underscores the importance of using carefully prepared factoring documentation that takes into account factoring fraud risks and responding dynamically to suspected fraud.
Judgment of the District Court in Lodz dated December 29, 2017. (X GC 912/17) -> interest for delay in commercial transactions
In the aforementioned ruling, the court confirmed that the factor, as a creditor, has the right to charge interest for delay in commercial transactions to the debtor (the factoring party's recipient). There are many more such rulings, but this one included a broader than usual justification of the issue. In addition, the court briefly analyzed the nature of factoring and the regulations applicable to it.
Judgment of the Court of Appeals in Warsaw on February 20, 2018. (VII AGa 111/18) -> claim from acts of unfair competition vs. factoring
The above ruling raises several interesting issues, including set-off in the debtor-factor relationship; claims for acts of unfair competition in terms of factoring coverage; shelf fees. The Court of Appeals held that claims for acts covered by the Anti-Unfair Competition Law cannot be covered by factoring.
Olsztyn Regional Court ruling of February 19, 2018. (V GC 245/17) -> deduction from a factored claim
The judgment relates to the ineffective set-off by the debtor (the factoring party's recipient) of the debtor's claim against the factor (the bank) with the factor's claim against the debtor covered by the factoring agreement. The court took the position of the ineffectiveness of such a deduction, citing the position of the Supreme Court expressed in its judgment of May 9, 2003, V CKN 218/2001 ("the debtor of a ceded receivable may not set off under Article 513 § 1 and 2 of the Civil Code his receivable, which has already arisen after receipt of the notice of assignment - with the receivable that was the subject of the assignment made by the factor - the assignor to the factor - the assignee") and treating this position as "well-established in the jurisprudence." The judgment also addresses the nature of factoring from a legal perspective.
Judgment of the Court of Appeals in Bialystok on 26/01/2018. (I AGa 18/18) -> effects of the factoring clause
The above judgment concerns a dispute between a factor (the Bank) and a debtor (the consignee) over payment for invoices covered by factoring with regard to, among other things, ineffective allegations of set-off and non-delivery. However, the court made several theses of a general nature - worth quoting.
What is most interesting about this ruling - in the Court's view, the mention of factoring on the invoices means that the defendant was informed of the assignment of these specific receivables, the main effect of which was to limit the debtor both in its ability to rely on allegations other than those known to it at the time it became aware of the assignment (Article 513 of the Civil Code) and in its ability to make any arrangements with the existing creditor after that date in a manner binding on the buyer of the receivables (Article 512, second sentence of the Civil Code).
The court also held that "the similar nature of the factoring agreement to the assignment of receivables justifies the appropriate application of the provisions of the Civil Code on a change of creditor (Articles 509 et seq.) when resolving disputes arising under this agreement. Undoubtedly, therefore, the debtor should be granted the right to raise against the factor all those objections to which the debtor was entitled against the seller of the claim (factor) at the time the debtor became aware of the assignment (Article 513 of the Civil Code). Whenever allegations are raised, the debtor naturally bears the burden of proving them. As a rule, the basis for these allegations is the relationship with the existing creditor. This undoubtedly includes objections that make it possible to dispute the existence, scope or nature of the transferred claim, provided that they existed at the time of knowledge of the transfer and provided that the debtor has not waived these objections. It should be mentioned here that it is accepted in the jurisprudence that the intention to waive must be clear and that such intention can be inferred only if the allegation was known to the debtor or if the debtor should have expected it to arise (judgment of the Supreme Court of 3.10.2001, IV CSK 160/07).".
Judgment of the Court of Appeals in Warsaw on 12.03.2018 (VI ACa 1629/17) -> inadmissibility of factoring against hospital debts
The above judgment concerns an interesting dispute - a factor with a Hospital (debtor-consignee). The case involved a specific fiduciary factoring agreement tailored to the medical market, which may have been aimed at circumventing the prohibition on changing the creditor of an independent public health care institution (without the consent of the creating entity), which is based on Article 54(5) of the Medical Activities Act.
The court interpreted the aforementioned prohibition broadly, holding that it covers not only legal actions directly leading to a change of creditor, but all legal actions whose effect, even if only indirectly, in the chain of induced legal events, is to change the creditor of an independent public health care institution (including endorsement of a bill of exchange, various types of factoring, surety, or guarantee agreement). Indeed, the purpose of the ban was also to restrict the trade in so-called "hospital receivables." The court held that the trust factoring agreement concerning receivables from the Hospital was invalid - as being contrary to Article 54(5) of the A.L. Moreover, the Court held that in such a situation, the counterparty of the creditor of the health care institution does not even acquire a claim against the Hospital for restitution of unjust enrichment. The same issue was also evaluated by the same Court in the judgment of 19.01.2018 (ref.: VI ACa 430/16).
Judgment of the Supreme Administrative Court in Warsaw dated 23.01.2018 (II FSK 3491/15) -> when debt acquisition is subject to PCC and not VAT
In this case, the NSA held that in the case of contracts for the assignment (trading) of receivables, where there is a purchase by the assignee of a receivable from the assignor for an agreed price - lower than the nominal value of the receivable - and no remuneration has been agreed between the parties for such a debt acquisition service (e.g. commission), this activity, if the contract is concluded at the assignee's (purchaser's) own risk, does not constitute a paid service, within the meaning of Article 8(1) of the PCC Act, and consequently is not subject to VAT. Thus, the NSA took the position that this type of activity does not benefit from the exemption provided for in Article 2(4) of the PCC Act and therefore is subject to tax on civil law transactions (PCC) under Article 1(1)(1)(a) of the PCC Act. The court also based its legal view on the CJEU's judgment in Case C-93/10 and the judgment of seven judges of the Supreme Administrative Court of March 19, 2012, Case No. I FPS 5/11, and did not share the applicant's view that it had in fact provided liquidity improvement services. A similar position was expressed by the WSA in Rzeszow in its judgment of 05/06/2018. (file reference: I SA/Rz 210/18). This topic was also dealt with by the Supreme Administrative Court in a judgment dated 14.02.2018 (ref.: I FSK 344/17), in which it distinguished factoring as a service subject to VAT from the acquisition of receivables in its own name and for its own account.
