Annulment of the Act on the Limitation and Distribution of Currency Risk between Creditors and Borrowers of Swiss Franc Loans

On 17 November 2022, the Constitutional Court of the Republic of Slovenia issued a decision in which, in the constitutionality review proceedings started at the initiative of nine banks, it decided to annul the Act on the Limitation and Allocation of Currency Risk between Creditors and Borrowers of Swiss Franc Loans (“ZOPVTKK“). The implementation of the ZOPVTKK was otherwise suspended by order of the Constitutional Court as from March 2022.

In the short period of time since its adoption on 2 February 2022, the ZOPVTKK regulated the renewal of contractual relationships under credit agreements denominated in Swiss francs concluded in the period from 28 June 2004 to 31 December 2010, by means of the conclusion of a new contract as if the credit agreements had been concluded in euro, with the application of a currency cap. The intention was to shift some of the burden of the increases in the cost of lending that followed the Swiss central bank’s intervention in 2015 and the suspension of the link between the Swiss franc and the euro from the borrowers to the lending banks.

According to the provisions of the ZOPVTKK, the creditor had to prepare a new amortisation plan, a calculation of the remaining debt and a proposal for an amortisation agreement within 60 days of the entry into force of the Law and deliver it within 75 days. In the latter, the creditor had to consider a specific methodology for the conversion of the obligations under the credit agreement in Swiss francs, based on a currency cap triggered in the event of a 10 % increase in the outstanding amount of the credit or an increase in the annuity in relation to the outstanding amount of the credit or the annuity calculated on the date of the drawdown. When the currency cap was triggered, the value of each annuity and other payments was calculated at the value at which the currency cap was triggered. Based on this calculation, if the creditor found that the credit had already been repaid according to the new calculation, it had to reimburse any overpayment to the borrower within 30 days of receipt of the signed agreement on the regularisation of mutual relations. If the credit had not yet been repaid after the new calculation, the ZOPVTKK provided that the contractual relationship would continue in accordance with the amortisation agreement and the new amortisation plan.

The central question considered by the Constitutional Court in the context of the review of the constitutionality and legality of the ZOPVTKK is whether the ZOPVTKK is incompatible with the constitutional prohibition of retroactive effect of legal acts under Article 155 of the Constitution of the Republic of Slovenia (“Constitution“), which provides that laws, regulations, and general acts cannot have retroactive effect. Since such a prohibition is not absolute, the Constitutional Court also assessed whether such an effect is required by the public interest and whether, in such a case, it does not interfere with rights already acquired.

In the specific case, the Constitutional Court held that the provision of the ZOPVTKK, which regulates the methodology for calculating the currency cap and temporalizes it to the moment of drawdown of the credit, i.e., the moment that occurred before the entry into force of the law, has a retroactive effect. At the same time, the Constitutional Court found that the specific provision allows for the retroactive effect of the other provisions of the ZOPVTKK, which otherwise have retroactive effect.

In connection with the above finding, the Constitutional Court emphasised that it was not the case that the entire legal regulation would have only a retroactive effect, but that the disputed provision on the methodology for calculating the currency cap, by virtue of its retroactive effect, would lead to the retroactive effect of the law as a whole. In the Constitutional Court’s view, the annulment of the specific provision governing the methodology for calculating the currency cap and of all the provisions of the law referring to it would leave only the content of the disputed law, which would have no meaning in itself, i.e., without the annulled provisions. For this reason, the Constitutional Court concluded that the law as a whole had retroactive effect, and not only the retroactive effect of its individual provisions.

During its assessment, the Constitutional Court also considered the possible existence of a special public interest which would exceptionally justify the retroactive effect of a statutory provision and found that no such public interest existed. Since the failure to meet one of the criteria set out in the Constitution is sufficient to establish that a law has an impermissible retroactive effect, the Constitutional Court did not deal with the criterion of the existence of an interference with acquired rights.

The Constitutional Court adopted its decision by seven votes to one.

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