56. Litigation claims

The entities in PZU Group are parties in a number of court and arbitration disputes as well as administrative proceedings. The typical court disputes are those related to insurance contracts, employment contracts and contractual obligations. The typical administrative proceedings, involving PZU Group entities, are those related to own property. The proceedings and disputes are typical and repetitive and, individually are not significant for PZU Group in most cases.

Most disputes involving the PZU Group entities pertain to two companies: PZU and PZU Życie. In addition, PZU and PZU Życie participate in proceedings before the President of the Office of Competition and Consumer Protection (UOKiK).

PZU and PZU consider such claims when creating technical provisions for reported damages, considering the probability of an unfavourable decision of the court and estimating the value of probable settlement. Disputable claims regarding revaluation of annuities at PZU Życie are recognized in other technical provisions in the amount of annual annuity in excess of the corresponding provision amount as determined in mathematical provisions for life insurance.

In 2014 and by the date of submission of the consolidated financial statements, PZU Group entities did not take part in any proceedings before court, competent authority for arbitration proceedings or public administration authority concerning liabilities or debt of PZU or its direct or indirect subsidiary of singular value of at least 10% of the equity of PZU.

As at 31 December 2014, the total value of all 60,534 cases heard by courts, competent authority for arbitration proceedings or public administration authority involving the PZU Group entities amounted to PLN 3,056,350 thousand. The amount includes PLN 2,509,850 thousand of liabilities and PLN 546,500 thousand of debt of the PZU Group entities, which accounted for 20.36% and 4.43% of the equity of PZU respectively, calculated in line with PAS.

All information available at the date upon which the consolidated financial statements are signed have been taken into account regarding estimations of provisions, however that value may be subject to change in the future.

56.1 Resolution of the General Shareholders Meeting of PZU regarding 2006 profit distribution

On 30 July 2007 a awsuit was filed by Manchester Securities Corporation (“MSC”), with the registered office in New York, against PZU regarding cancellation of the General Meeting of Shareholders of PZU’s Resolution no. 8/2007 of 30 June 2007 regarding distribution of PZUs’ profit for 2006 as non-compliant with good practices and acting to the detriment of the plaintiff, a shareholder of PZU.

The contested resolution of the General Meeting of Shareholders of PZU distributed the 2006 profit of PLN 3,280,883 thousand in the following manner:

  • PLN 3,260,883 thousand to the supplementary capital;
  • PLN 20,000 thousand to the Social Benefits Fund.

Thrugh its ruling, on 22 January 2010, the District Court in Warsaw cancelled the aforementioned resolution. PZU appealed against the judgment in its entirety, including final appeal to the Supreme Court with respect to the aforementioned decision, which dismissed the cassation complaint on 27 March 2013. The judgment is final and it may not be appealed against.

PZU believes that cancelation of the above GSM resolution does not give rise to shareholders’ claim for dividend.

Following the decision cancelling resolution No. 8/2007 becoming effective, the agenda of the PZU GSM of 30 May 2012 included a point regarding distribution of profit for 2006 in a manner corresponding to the cancelled resolution No 8/2007. Manchester Securities Corporation objected against the resolution of 30 May 2012, which was recorded in the minutes.

On 20 August 2012, PZU received a copy of the lawsuit filed by MSC to the District Court in Warsaw, which stated that said company seeks the cancellation of the resolution of the General Meeting of Shareholders of PZU dated 30 May 2012 on the distribution of profit for 2006, and the value of the subject of dispute was determined by the plaintiff to the amount of PLN 5,054 thousand. PZU filed its response to the lawsuit seeking the dismissal of the lawsuit in its entirety.

On 17 December 2013, the District Court pronounced a judgement whereby the claims were accepted in their entirety and the costs of the proceedings were awarded from PZU to MSC. On 4 March 2014, PZU appealed against the judgement in its entirety. On 11 February 2015, the Appellate Court in Warsaw passed a judgement that changed the judgement of the District Court dated 17 December 2013 in its entirety, dismissed the action filed by MSC and ordered MSC to pay the costs of the proceedings. The judgement of the Appellate Court is final.

On 16 December 2014, MSC called PZU to pay PLN 264,865 thousand of compensation due to the cancellation of the resolution No 8/2007 of the General Meeting of Shareholders of PZU of 30 June 2007 on the distribution of profit of PZU for 2006. PZU refused to fulfil the obligation.

As at 31 December 2014, no changes in the presentation of PZU capitals were made that may result from cancellation of the resolution of the General Meeting of Shareholders on the distribution of profit for 2006, including “Supplementary capital” and “Previous year profit (loss)”. The funds appropriated to the Company’s Social Benefits Fund were not adjusted and no provisions were recognised against any potential additional claims resulting from cancellation of the above resolution.

56.1.1. Other demands for payment concerning the distribution of profit of PZU for 2006

On 17 December 2014, Wspólna Reprezentacja SA called PZU to pay the amount of PLN 56,281 thousand and the amount of PLN 618 thousand as claims compensation acquired from the shareholders as a response to their deprivation of the right to a share in the profit of PZU. PZU refused to fulfill the obligation.

Apart from the above mentioned documents, the shareholders or the former shareholders presented PZU with a request for payment based on the facts presented above. The parties requesting the payment did not indicate specific amounts, but a number of shares, or simply request the payment. PZU submitted a response in writing indicating that such claims did not exist and they would not be taken into account.

56.1.2. Other legal proceedings concerning the distribution of profit of PZU for 2006

On 19 January 2015, the District Court of Warsaw delivered a copy of a motion with attachments regarding the action initiated by Wspólna Reprezentacja SA for a summons to a conciliation hearing concerning the amount of PLN 56,281 thousand. The date of the hearing was set for 19 February 2015.

On 2 February 2015, the District Court of Warsaw delivered a copy of an application of MSC for a summons to a conciliation hearing concerning the amount of PLN 264,865 thousand. The claim covered in the application is tantamount to the request filed by MSC on 16 December 2014.

PZU is receiving other copies of motions for a summons to a conciliation hearing concerning settlement agreements consisting in the payment of the amount due to the share in the profit of PZU for 2006. Some of the proceedings have already ended.

PZU refused the conciliation proposal indicating that such claims did not exist and they would not be taken into account.

PZU is receiving single copies of requests for the payment of dividends or compensation. PZU consistently responds to such requests demanding their cancellation in their entirety.

56.2 Proceedings conducted by the Office of Competition and Consumer Protection (“UOKiK”) against PZU

56.2.1. Fine imposed in 2009 for standard agreements

In a decision of 30 December 2009 the President of the Office of Competition and Consumer Protection imposed a fine on PZU of PLN 14,792 thousand for the use of practices that infringe the collective interest of consumers consisting of:

  • including contractual provisions listed in the Register of prohibited contractual provisions in the standard agreements;
  • including contractual provisions which infringe Article 813.1 of the Civil Code by citing the unused sum insured as the condition for the amount of premium reimbursed to the consumer by the insurance company due to unused insurance period whereas the Article does not refer to such condition.

PZU does not agree with both the decision and its statement of reasons. After several years of proceedings, on 6 November 2013, the Appellate Court in Warsaw changed the judgment issued by the Court of Competition and Consumer Protection (“SOKiK”) of 18 January 2013 through reversal of the decision of the President of the Office of Competition and Consumer Protection dated 30 December 2009 in part, dismissal – as regards the contractual clauses in contravention of Article 813.1 of the Civil Code – of PZU’s appeal of 18 January 2010, reduction of fine to PLN 1,644 thousand. The judgement of 6 November 2013 is final and was executed through the payment of PZU of the awarded financial penalty. 23 June 2014, PZU filed a cassation appeal to the Supreme Court against the judgement on 24 July 2014, PZU received a response of President of Office of Competition and Consumer Protection to its cassation appeal. On 28 January 2015, the Supreme Court issued the decision accepting the cassation appeal for consideration without setting a date for the hearing.

56.2.2. Fines imposed in 2011

56.2.2.1. Reimbursement of the costs of rental of a replacement car

In a decision of 18 November 2011 the President of the Office of Competition and Consumer Protection imposed a fine on PZU of PLN 11,287 thousand for the use of practices that infringe on the collective interest of consumers as set out in Article 24.1 and 24.2 of the Act on competition and consumer protection (Journal of Laws No. 50 of 2007, item 331, as amended) consisting in limitation of the scope of liability of PZU towards consumers that submit claims under the insurers’ guarantee liability due to compulsory civil liability insurance of an owner of a motor vehicle by:

  • refusing to acknowledge that the loss of the possibility to use the damaged car is a property damage and agreeing to pay damages for the rental of a replacement car only if the injured party presented specific circumstances necessitating the rental of a replacement car;
  • leaving out the period necessary for the garage to obtain spare parts from the calculation of the reimbursement for the costs of rental of the replacement car and demanded that the practices be discontinued.

The Management Board of PZU does not agree with the decision and its legal and factual statement of reasons. On 5 December 2011 PZU appealed against the decision (thus the decision did not become valid).

At a trial held on 2 December 2013, the District Court in Warsaw passed a judgment whereby PZU’s appeal was dismissed and the costs of legal representation were awarded from PZU to the President of the Office of Competition and Consumer Protection. On 23 December 2013, PZU Życie appealed against the decision. At the hearing on 17 December 2014, the Appellate Court issued a decision suspending the above proceedings until the Supreme Court settles the legal issue that raises serious doubts regarding a different case pending before the Appellate Court.

Regardless of the initiated legal procedures, PZU Życie recognized a provision for the above fine, whose amount both as at 31 December 2014 and 31 December 2013 was PLN 11,287 thousand.

56.2.2.2. Sale of a group accident insurance

In a decision of 30 December 2011 the President of the Office of Competition and Consumer Protection imposed a fine on PZU of PLN 56,605 thousand for the use of practices that limit competition and infringe the prohibition specified in Article 6.1.3 of the Act on competition and consumer protection following an agreement concluded by PZU and Maximus Broker Sp. z o.o. with its registered office in Toruń (“Maximus Broker”) that limited the competition in the domestic accident group insurance for children, youth and staff of educational institutions by dividing the market between the entities – the clients of PZU in the kujawsko-pomorskie region were serviced by Maximus Broker in exchange for recommendation of PZU insurance to those clients. The Office demanded that the practices be discontinued.

The Management Board of PZU refuses to agree with the facts and legal reasons presented in the decision, because the decision does not consider all the evidence and the legal classification was not correct.

On 18 January 2012 PZU appealed against the decision (thus the decision did not become valid). In the appeal PZU pointed that:

  • PZU and Maximus Broker did not conclude any agreement apart from the agreement concerning brokerage fees;
  • the President of the Office of Competition and Consumer Protection is wrong in the understanding of insurance contracts concluded via a broker;
  • the majority of insurance contracts concluded via Maximus Broker was concluded with insurance companies other than PZU;
  • PZU and Maximus Broker cannot and could not carry out competitive activities in their markets.

On 22 October 2012, PZU received a response of President of Office of Competition and Consumer Protection to its appeal. The hearing, at which the appeal of PZU will be addressed, was scheduled for 13 March 2015.

Regardless of the initiated appellation procedures, PZU Życie recognized a provision for the above fine, whose amount both as at 31 December 2014 and 31 December 2013 was PLN 56,605 thousand.

56.3 Proceedings conducted by the Office of Competition and Consumer Protection against PZU Życie

On 1 June 2005, at the request of several petitioners the President of the Office of Competition and Consumer Protection (“OCCP”) instituted anti-monopoly proceedings on suspicion of abuse by PZU Życie of its dominant position in the market of employee group insurance, which might have constituted a breach of the provisions of Article 8 of the Act on competition and consumer protection and Article 82 of the Treaty Establishing the European Community. In the decision of 25 October 2007 concluding the aforementioned proceedings, the President of the Office of Competition and Consumer Protection imposed a fine of PLN 50,384 thousand on PZU Życie for hindering access to the competitors’ offers.

The Management Board of PZU Życie disagrees both with the findings and legal arguments presented in the decision. According to the Management Board of PZU Życie the decision issued did not take into account all the evidence and the legal qualification was incorrect, as a result of which it was assumed wrongly that the market position of PZU was dominant. PZU Życie appealed against the decision to the Court of Competition and Consumer Protection, presenting 38 substantive and formal charges with respect to the decision issued by the President of the CCCP.

After several years of proceedings, the CCCP in a ruling of 17 February 2011 partly modified the decision in question, at the same time dismissing the appeal lodged by PZU Życie in relation to the amount of penalty. On 6 May 2011, PZU appealed against the decision.

On 9 May 2013, the Appellate Court in Warsaw admitted the charges filed by PZU Życie and reversed the judgement of the CCCP on grounds of nullity of legal proceedings, cancelled the proceedings to the extent that they were null and remanded the matter for a new trial before the CCCP.

As a result of further proceedings, in the judgement of 28 March 2014 the CCCP dismissed the appeal of PZU Życie and adjudged the return of proceeding’s expenses by PZU Życie. On 10 July 2014 PZU Życie appealed against the judgement of the CCCP of 28 March 2014, appealing against the judgement in its entirety. The court sent a copy of the appeal to the defendant and other participants who submitted a response to the appeal. Subsequently, the files were sent to the Appellate Court in Warsaw which will set the date for the appeal hearing.

Regardless of the initiated appellation procedures, PZU recognized a provision for the above fine, whose amount both as at 31 December 2014 and 31 December 2013 was PLN 50,384 thousand.

56.4 Dispute with CSC Computer Sciences Polska Sp. z o.o.

56.4.1. Proceedings before the Court of Arbitration at the Polish Chamber of Commerce in Warsaw

On 9 April 2010 the Court of Arbitration served on PZU Życie a statement of claim for payment. The case against PZU Życie was brought by CSC Computer Sciences Polska sp. z o. o. (“CSC”) which demanded payment of EUR 8,437 thousand with respect to implementation of the GraphTalk system at PZU Życie. Following subsequent amendments, CSC claimed the total of PLN 35,663 thousand with interest due from the claim date (i.e. from 31 March 2010) until the date of payment. The amount sought by CSC included, among others, the claims related to licence fees, implementation works, support and maintenance services, contractual penalties and capitalized interests.

On 31 May 2010 PZU Życie requested that the Court of Arbitration dismiss some claims as time inappropriate and dismiss the lawsuit in its entirety. PZU Życie also filed a counter suit against CSC, demanding payment of PLN 71,890 thousand as a return of the remuneration collected by CSC or as damages for undue performance of obligations. On 31 August 2010, CSC motioned for dismissal of the entire claim of PZU Życie indicating absence of evidence to consider it.

After the proceedings before the Arbitration Court at the Polish Chamber of Commerce in Warsaw, on 18 December 2012, the court issued a judgement (“Judgement of the Arbitration Court 108/10”) adjudicating the payment of PLN 17,193 thousand for CSC by PZU Życie and discontinued the proceedings concerning the main complaint regarding the payment of EUR 8,437 thousand with statutory interest for the period from the claim date. Furthermore, the Arbitration Court dismissed the remainder of the principal action and dismissed the PZU Życie mutual claim.

As at 31 December 2014 PZU Życie established a provision for the case in question in the amount of PLN 22,668 thousand (as at 31 December 2013: PLN 50,944 thousand).

56.4.2 Proceedings for a declaration of enforceability of the Judgement of the Arbitration Court 108/10

On 23 January 2013, CSC motioned the District Court in Warsaw for a statement of enforcement of the Judgement of Arbitration Court 108/10 and providing it with a writ of execution. On 15 March 2013 the court issued an order of enforcement with respect to the Judgement.

On 18 March 2013, PZU filed a complaint against the aforesaid decision of 15 March 2013 with the District Court in Warsaw, demanding suspension of its enforcement. In response, on 22 March 2013, the Court decided to suspend enforcement of the aforementioned decision until resolution of the complaint lodged by PZU Życie. On 4 April 2013, CSC submitted to the Court its response to the complaint filed by PZU Życie demanding its dismissal in its entirety. The Appellate Court decided to adjourn the hearing of the complaint until the date of the District Court’s examination of the complaint filed by PZU Życie to reverse the Judgement of Arbitration Court 108/10.

On 28 November 2014, CSC requested the proceedings for a declaration of enforceability of the Judgement 108/10 in connection with a final dismissal of complaint filed by PZU Życie to reverse the Judgement of the Arbitration Court 108/1 described in 57.4.3). The District Court resumed the proceedings and referred the files to the Appellate Court for it to adjudicate the claim of PZU Życie.

56.4.3. Proceedings concerning the complaint filed by PZU to reverse the Judgement of the Arbitration Court 108/10

On 1 February 2013, PZU submitted a complaint to the District Court in Warsaw, motioning for cancellation of the Judgement of the Arbitration Court 108/10 and suspension of its execution.

After the proceedings, on 12 November 2013, the District Court rejected the complaint to reverse the Judgement of the Arbitration Court 108/10. PZU appealed to the Appellate Court in Warsaw and on 17 February 2014 a response to the appeal was received. On 21 November 2014, the Appellate Court in its judgement dismissed the appeal of PZU Życie.

56.4.4. Proceedings before the Court of Arbitration at the Polish Chamber of Commerce in Warsaw concerning a claim for payment

On 29 March 2013, CSC filed a suit against PZU with the Court of Arbitration at the Polish Chamber of Commerce in Warsaw, for the payment of PLN 6,690 thousand in statutory interest concerning the amounts awarded in the proceedings described in 57.4.1 accrued in the period from the suit date to the payment date.

After the proceedings, on 24 April 2014, the Court of Arbitration in its judgement (“Judgement of the Arbitration Court 67/13”) adjudicating the payment of PLN 2,397 thousand for CSC by PZU Życie together with interest accrued from the judgement date to the payment date, the amount of PLN 40 thousand net as a refund of the arbitration fee, the amount of PLN 1 thousand as a refund of of the registration fee and PLN 18 thousand as a refund of the cost of legal representation. In other aspects, the Arbitration Court dismissed the claim of CSC.

56.4.5. Proceedings concerning the Judgement of the Arbitration Court 67/13

Following the exchange of the pleadings, in a decision of 22 August 2014, the Court issued a statement of enforceability of the Judgement of the Arbitration Court 67/13 in part of the claim of CSC and issued an order of enforcement with respect to the Judgement. On 10 September 2014 PZU Życie challenged this decision with a complaint. After CSC obtained the order of enforcement, on 15 September 2014, PZU Życie paid to CSC the amounts covered by the enforcement order, doing it under reserve.

On 4 June 2014, PZU submitted a complaint to the District Court in Warsaw, motioning for cancellation of the Judgement of the Arbitration Court 67/13 and suspension of its execution. On 25 July 2014, CSC issued a response to the complaint to reverse the Judgement of the Arbitration Court 67/13.

On 12 August 2014, CSC submitted a complaint to reverse the Judgement of the Arbitration Court 67/13 to the District Court in Warsaw, mentioning to reverse the Judgement in, among others, the part dismissing CSC’s claim in the amount of PLN 6,689 thousand. On 26 September 2014, PZU Życie filed its response to the complaint.

To the date of signing the consolidated yearly report, the complaints of PZU Życie and CSC to reverse the Judgement of the Arbitration Court 67/13 had not been considered.

56.5 Submission of PZU claims to the insolvency estate of PBG Capital Group companies

PZU concluded contracts of mandate regarding periodic insurance guarantees (contractual guarantees) with PBG SA (“PBG”) and Hydrobudowa Polska SA (“Hydrobudowa”). The registered offices of both companies are located in Wysogotowo near Poznań. PZU issued insurance guarantees on the basis of their contracts. Should PZU perform on these guarantees, its clients were obliged to refund amounts paid to PZU.

In 2012, bankruptcy proceedings were initiated against PBG and Hydrobudowa. On 21 September 2012 PZU joined the above proceedings submitting its claims to the insolvency estate of both companies.

PBG and Hydrobudowa belong to the same capital group with PBG as the parent entity. They granted sureties to each other. All claims submitted to the insolvency estate of Hydrobudowa in the amount of PLN 100,996 thousand have been therefore submitted in relation to the insolvency estate of PBG as well. Out of the above claims:

  • PBG granted sureties regarding PLN 33,747 thousand arising from guarantees issued for Hydrobudowa;
  • Hydrobudowa granted sureties regarding PLN 67,249 thousand arising from guarantees issued for PBG.

Following their verification by the judge-commissioner and the court appointed supervisor, PZU’s receivables due from the bankruptcy estate of PBG of PLN 103,014 thousand have been entered into the list of liabilities. As at 31 December 2014, the sureties amount to PLN 102,164 thousand and their reduction is due to the expiration of a part of guarantees to which no claims were reported.

56.6 Receivables arising from a mortgage agreement with Metro-Projekt Sp. z o.o.

In 1999 PZU granted a mortgage to Metro-Projekt Sp. z o. o. (“Metro-Projekt”) with a 5-year tenor. The amount of the loan was the equivalent of USD 25,500 thousand . The loan was 177ollateralized by maximum value mortgage on property, including the land perpetual usufruct and a building owned by Metro-Projekt, located in Warsaw at Al. Jerozolimskie 44.

Metro-Projekt did not repay its loan, and in November 2002 it was declared bankrupt.

The proceedings resulting from the Receiver of Universal SA filing for a separation of the property located at Al. Jerozolimskie 44 in Warsaw from the bankruptcy estate of Metro-Projekt began in 2004.

As a result of a settlement concluded in 2013, in exchange for resigning from claims for the insolvency estate of Universal, the insolvency estate of Metro-Projekt was to be charged with an additional amount of PLN 5,722 thousand to be transferred to the former.

In 2013 and 2014, the Receiver of Metro-Projekt announced the sale of the enterprise of the bankrupt company under a single-source contract, with a provison that it should have the form of a tender auction. The starting price for the enterprise was PLN 110 million, PLN 99 million, PLN 93 million, PLN 90 million and PLN 90 million, respectively. As no tenders were submitted, the procedure was not carried out.

Another announcement of the Receiver concerning the sale of the enterprise was published on 25 August 2014. The starting price for was set at PLN 80 million and the opening of bids was originally planned for 24 September 2014, later postponed to 10 October 2014 and further to 17 October 2014. The only bid in the amount of PLN 80 million was opened on 21 October 2014.

The Receiver sold the enterprise for PLN 80 million on 18 December 2014. In the opinion of the Receiver, the claim of PZU in the amount disclosed on the list of liabilities should be fully satisfied.

As at 31 December 2014 the carrying amount of the receivables from Metro-Projekt was PLN 109,478 thousand (PLN 83,203 thousand as at 31 December 2013). The change resulted from the release due to the impairment loss presented in Note 14.