Court of Justice: Bank can demand setoff even if it regards the contract as valid | In Principle

On 22 January 2026 the Court of Justice of the European Union issued another in a series of rulings resolving doubts arising out of litigation over Swiss-franc-denominated mortgage loans to Polish borrowers. In C-902/24, Herchoski, the Court of Justice considered a request for a preliminary ruling submitted by the 28^th Civil Division of the Warsaw Regional Court.

The Polish court had doubts arising out of the paradoxical posture of a case before it: when consumers sue the bank for a refund of all loan repayment instalments the consumers have paid to the bank, can the bank demand a setoff of the loan principal it paid out, while maintaining that the parties’ credit agreement is valid? The Polish court also sought guidance on the deadline set for the consumers to refund the loan principal, and on allocation of trial costs.

Facts and questions presented by the Warsaw court

In 2008 the plaintiffs (consumers) concluded an agreement with a Polish bank to take out a mortgage loan denominated in Swiss francs, under which the bank granted them credit in the equivalent of PLN 360,000. The agreement contained several provisions concerning how to convert sums between Swiss francs and Polish zlotys (conversion clauses). In 2022 the consumers filed suit seeking a declaration that the credit agreement was void due to the unfairness of the conversion clauses. According to the plaintiffs, the credit agreement could no longer be binding without those provisions. The consumers also sought to recover PLN 327,338, the total of monthly loan repayment instalments they had paid, along with statutory interest and trial costs.

In its defence, the bank asserted that the credit agreement was valid, and moved to deny the plaintiffs’ claim and charge the consumers with the trial costs. Later in the proceedings the bank summoned the consumers to return within two-and-a-half weeks the entire amount of the principal released under the credit agreement. Then the bank served on the consumers a declaration of the bank’s intention to set off its own claim against the claim pursued by the consumers. The defence of setoff was asserted before the court a few days later. In December 2024 the Warsaw Regional Court issued a partial judgment finding that the credit agreement was void because the conversion clauses were unfair and the agreement could not continue in existence without those clauses.

As for the rest of the dispute before it, the Warsaw court had doubts about the consistency with EU law of the interpretation of national law concerning potential methods of settling accounts between the parties to a credit agreement (Art. 6(1) and 7(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts). The court stayed the proceeding and referred the following question to the Court of Justice for a preliminary ruling:

“In the context of a mortgage loan agreement declared invalid in its entirety on the grounds that it contains unfair terms without which it cannot continue in existence, must [Art.] 6(1) and 7(1) of [Directive 93/13/EEC] and the principles of effectiveness, equivalence, proportionality and legal certainty be interpreted as precluding a judicial interpretation of national provisions according to which:

• in an action brought by a consumer against a bank for the return of the equivalent of the payments made under a loan, the bank may raise an effective plea of set-off of its claim for repayment of the equivalent of the loan principal against the consumer’s claim;
• the bank may effectively raise the above plea of set-off also in the alternative, while in principle its plea is that the loan agreement is valid and does not contain unfair contractual terms;
• the bank may effectively demand that the consumer return the equivalent of the loan principal disbursed in the performance of an invalid agreement (as a result of which the bank’s claim becomes due), while in principle the bank’s plea is that the loan agreement is valid and does not contain unfair contractual terms;
• the bank may set a two-week deadline for the return by the consumer of the equivalent of the entire loan principal (as a result of which the bank’s claim for the return of the equivalent of the entire loan principal becomes due);
• the consumer is ordered to pay part of the legal costs to the extent that his or her action for payment was dismissed due to the plea of set-off raised by the bank being upheld?”

Court of Justice ruling

In response to the question referred by the Polish court, the Court of Justice held:

“Article 6(1) and Article 7(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, and the principle of effectiveness, read in the light of the principles of legal certainty and proportionality and of the right to effective judicial protection, must be interpreted as not precluding a judicial interpretation of national law which, in proceedings brought by a consumer seeking to have the mortgage loan agreement concluded with a seller or supplier declared invalid and to obtain the repayment of the monthly instalments paid under that agreement, allows that seller or supplier, whilst maintaining, primarily, that that agreement is valid, to raise, in the alternative, a plea of set-off based on a claim corresponding to the amount of that mortgage loan, provided, first, that the latter claim is not deemed to be due before the court having jurisdiction has found that agreement to be invalid and, second, that upholding such a claim does not result in a decision on the costs of the proceedings likely to dissuade the consumer from exercising the rights conferred on him or her by that directive.”

Thus when it comes to setoff, the Court of Justice imposed two conditions on its holding:

• First, the bank’s claim cannot be regarded as due and payable before the court has held that the credit agreement is invalid
• Second, the upholding of the bank’s defence must not lead to a decision on the trial costs that could discourage consumers from exercising their rights under Directive 93/13/EEC.

If these conditions are met, in the judicial proceeding the bank can effectively claim the benefit of setoff.

Summary

The judgment by the Court of Justice in the request for a preliminary ruling in C-902/24, Herchoski, is clearly advantageous to banks.

This solution is fully consistent with the established practice, consistently applied by banking institutions, while facilitating the overall settlement of mutual claims and obligations between the parties within a single, consolidated judicial proceeding.

The setoff mechanism provides a significant benefit by eliminating the state of legal uncertainty in which the parties to a legal relationship find themselves with regard the final shape of their mutual financial settlements. Setoff generates measurable benefits not only from the perspective of the parties involved in the dispute, but also for the efficiency and rational functioning of the entire justice system. Thanks to the possibility of setoff, it is not necessary to initiate separate, additional proceedings seeking repayment of the loan principal paid out to the consumer borrower.

Depriving a banking institution of the possibility of raising the procedural defence of setoff of mutual claims in litigation brought by consumers would infringe the bank’s fundamental right to judicial protection—an infringement disproportionate to the objectives to be achieved by restricting the defendant’s procedural rights.

Mateusz Kosiorowski, adwokat, Dispute Resolution & Arbitration practice, Klaudiusz Mikołajczyk, Banking & Project Finance practice, Wardyński & Partners