Legal recourse for claims by institutions arising from bills of exchange

The resolution is a result of a long-running discussion on which procedure – civil or administrative – is appropriate for pursuing the claims of an institution for reimbursement of a grant.

The Supreme Court’s resolution was issued in a case in which an institution, the Implementing Authority for European Programmes, which had concluded an agreement with a beneficiary, filed a claim against it in a civil court on a promissory note. The promissory note had been issued by the beneficiary to secure the performance of a grant agreement concluded under the Operational Programme Innovative Economy 2007-2013, with the agreement having been terminated by the institution due to its non-performance by the defendant. The promissory note declaration authorised the plaintiff, in the event of the defendant’s non-performance of the agreement, to replenish the blank promissory note received from the defendant for an amount equal to the amount of the European funds transferred to the defendant up to the value of the grant and interest in the amount as for tax arrears and the costs of additional fees.

The Regional Court rejected the institution’s claim, holding that the subject matter of the case was the return of funds allocated for the implementation of EU programmes, and in accordance with the regulations (Article 207 of the Public Finance Act), the return of funds is decided in the form of an administrative decision. Thus, in the opinion of this court, the court route was excluded for the institution’s claim. The Court of Appeal, in considering the plaintiff’s complaint against this decision, decided to refer the legal question to the Supreme Court:

The Supreme Court held that the judicial route for the institution’s claim under the promissory note was permissible. In the court’s view, although the obligation arising from the issuance of the promissory note remains in close connection with the obligation to reimburse the grant, the source of which is the contract, the claim for payment of the promissory note and the claim for the reimbursement of the grant provided for in the contract in cases of certain deficiencies are separate claims. Moreover, the case for each of these claims is a separate case based on a different factual and legal basis. The separateness manifests itself in the fact that the provisions of the Public Finance Act explicitly refer only to the reimbursement of the subsidy, the obligation of which arises from the contract, and do not explicitly exclude cases for the payment of a promissory note securing the reimbursement of the subsidy. At the same time, if a claim for reimbursement of a subsidy not based on a promissory note relationship was brought to the civil court, the civil court would be inadmissible for such a case.

In addition, in the opinion of the court, the assumption that the court procedure would be excluded in the case of a claim based on a bill of exchange would lead to the elimination of the bill of exchange as a means of securing a claim for reimbursement, as a bill of exchange can only adequately fulfil its functions if there is a possibility of claiming payment based on it under a simplified procedure and if there is a connection with claiming payment based on it in terms of securing and enforcing the claim covered by it – measures which are only available in court proceedings.

For the above reasons, the elimination of the bill of exchange as a means of securing the repayment of improperly used co-financing would also be in clear contradiction with the implementing provisions of the Public Finance Act, which provide for the obligation to establish a blank bill of exchange in certain situations to secure the proper performance of obligations under the co-financing agreement.

One of my first publications, made jointly with Professor Rafał Poździk, was devoted precisely to the issue of the proper judicial route for claims arising from a funding agreement. As it turns out, seven years after our joint publication entitled „The judicial route in cases related to the co-financing of projects. „The judicial route in matters related to the co-financing of projects from the structural and cohesion funds”, we have lived to see a number of court decisions on this – seemingly only legal – problem, which in reality has a primarily practical dimension.

The Supreme Court’s resolution is thus neither the first nor the only voice on the subject. Significantly, none of the judgments passed during this period has definitively resolved the problem caused by the legislator. This is hardly surprising, as the problem is momentous and a clear position on the part of the legislator would be necessary for its definitive resolution.

However, the scope of possible issues related to the distribution of European funds, which may be subject to the jurisdiction of common courts, refers not only to matters related to the grant agreement itself and possible repayment of funds by the beneficiary, but is broader. It is also possible to construct other claims resulting from relations between the beneficiary and the competent institution, e.g. claims for payment of a grant by the beneficiary, claims for conclusion of a grant agreement, claims resulting from termination of the agreement by one of the parties. There are also examples to be found in the case-law which prove that even cases concerning the adjudication of financial corrections should be subject to the jurisdiction of the ordinary courts. This view, in turn, contradicts the position of the administrative courts, according to which financial corrections should be adjudicated by administrative decisions.

Let us now return to the assessment of the SN resolution. It is impossible to deny the accuracy of the SN’s arguments referring to the deprivation of any significance of the promissory note, with the adoption of the view that the assertion of a claim based on it would be impossible by civil means. However, it is also difficult not to notice a significant gap, and in fact a conflict between the two regimes, civil and administrative, when it comes to assessing in practice the same events, i.e. the correctness of the implementation of the grant agreement. The Supreme Court does not resolve this problem, stating laconically that a claim for reimbursement of a grant is based on different factual and legal grounds than a claim under a bill of exchange.

Meanwhile, this does not seem to be quite in line with reality, as practice shows. The same case is very often the subject of two parallel proceedings. Such cases most often occur when the project has not been fully settled and, on the one hand, the beneficiary, who claims that he/she is implementing the contract correctly, decides to pursue his/her claim under civil law, and, on the other hand, the institution conducts proceedings for the return of funds already paid. It also cannot be ruled out that the institution decides to pursue two proceedings in parallel by initiating both administrative proceedings for repayment and, in addition, pursuing a claim under the promissory note.

Significantly, these types of cases, which in principle completely coincide in terms of facts, can be (and indeed as practice shows, are) assessed completely differently in law. Civil courts often assess in a different way such elements of the contract as e.g. the lack of cooperation of the institution in the implementation of the contract, and also take into account the complexity of the contract, the rank and type of faults alleged against the beneficiary and the reasons why a given obligation, e.g. in terms of achieving certain indicators, has not been met. Administrative courts, on the other hand, assess the decision made only from the point of view of its legality, they cannot use the assistance of experts, and they cannot independently conduct (apart from in a limited documentary scope) evidence proceedings, which very often prevents a full and proper analysis of the dispute between the parties to the contract for co-financing.

As a result, grant reimbursement cases before administrative courts, the average length of which oscillates around more than a year from the date of filing the complaint (and taking into account administrative proceedings preceding reimbursement decisions), take several years to be heard inefficiently. It is also not difficult to see that the introduction of typical civil law safeguards for grant agreements was probably intended to facilitate faster settlement for the institutions, which would not necessarily be possible in administrative proceedings.

Uchwała SN rozwiązuje istotny problem prawny. W mojej ocenie, o ile samo rozstrzygnięcie można ocenić pozytywnie, to SN mógł pokusić się o dalej idącą ocenę stanu prawnego dotyczącego realizacji umów o dofinansowanie.

It also cannot be completely ruled out that an authority decides to conduct two parallel proceedings: an administrative proceeding for reimbursement and a court proceeding for a claim under a bill of exchange, and then, depending, for example, on the verdict in the first instance, decides to withdraw the claim.

In order to avoid this type of situation, as well as the stability of the legal situation of the addressees, it would be desirable for the legislator to unambiguously determine which of the modes of recovery is the only appropriate one. At the same time, in view of the fact that the relationships arising from funding agreements are very complex and often require specialist knowledge and evaluation of economic events, it would be desirable to subject all disputes arising from funding agreements, including claims for reimbursement, to the jurisdiction of a civil court.