Supreme Court resolution — authority to raise a procedural set-off defence

The Court of Appeal in Katowice[1] referred a legal question to the Supreme Court over doubts concerning the Code of Civil Procedure’s set-off rules and the statutory scope of litigation powers of attorney. It asked whether a litigation power suffices to raise a set-off defence under Article 203¹ and for opposing counsel to receive that declaration, or whether a separate authority for substantive legal acts is necessary.

Substantive set-off and procedural set-off

The basic form is substantive set-off, regulated by the Civil Code. One party’s claim may be set off against another’s where both are simultaneously debtors and creditors of each other. Both claims must be due and enforceable before a court or another state body. Their subject matter also matters: money or fungible things of the same quality (Article 498). Where these conditions are met, a declaration to the other party effects set-off retrospectively from the moment it became possible (Article 499).

Procedural set-off, regulated by the Code of Civil Procedure, is another form. It may be based only on the defendant’s claim arising from the same legal relationship as the claimant’s, unless it is undisputed, established by a final court judgment, arbitral award, court or arbitral settlement, a court-approved mediated settlement, or substantiated by a document confirming the claimant’s acknowledgment.

It may also be based on a joint and several debtor’s claim against the other co-debtors for reimbursement of performance (Article 203¹ § 1).

Procedural set-off takes the form of a defence. The defendant may raise it:

• no later than when engaging in the dispute on the merits, or within two weeks after its claim becomes due (Article 203¹ § 2);
• only in a pleading, to which rules governing statements of claim apply mutatis mutandis, except fee provisions (Article 203¹ § 3).

Legal scholarship explains that a procedural set-off defence essentially combines a procedural declaration seeking dismissal with a substantive declaration seeking discharge of claims. If set-off occurred before proceedings, the relevant defence is no longer set-off itself but any defence asserting the claim’s non-existence[2].

Similarly, the Supreme Court held that an Article 499 declaration is a substantive act discharging reciprocal claims to the relevant extent where Article 498 § 1 conditions are met. A set-off defence is a procedural act requesting full or partial dismissal because the claimed entitlement has expired through set-off. The substantive declaration therefore underpins the procedural defence[3].

The legal question referred to the Supreme Court

The Court of Appeal’s doubts arose where the defendant’s lawyer made the declaration under a litigation power of attorney rather than authority for substantive acts.

By law, a litigation power authorises:

• all procedural acts connected with the case, including counterclaims, cassation appeals, applications to reopen and ensuing proceedings, and principal intervention against the principal;
• all interim protection and enforcement acts;
• granting a further litigation power to an advocate or legal adviser;
• settling, waiving a claim or admitting an action, unless excluded by the power;
• receiving litigation costs from the opposing party (Article 91).

This list does not therefore establish authority for substantive acts.

In its referral, the Court of Appeal cited the first-instance Regional Court in Gliwice, which held that the set-off defence could not be effective because the claimant’s lawyer, as recipient of the declaration, lacked separate substantive authority[4].

Two scholarly approaches underlie the doubts:

1. “In every case, to make or receive an effective set-off declaration and subsequently raise a set-off defence, appointed litigation counsel must also obtain a substantive power of attorney.”[5]
2. “The declaration of intent and request for dismissal following set-off jointly constitute one act combining procedural and substantive elements. Failure to meet a substantive requirement means the dismissal request will not be granted. Failure to meet a necessary procedural requirement makes the set-off declaration ineffective. Since the defence is expressly regulated in procedural law, litigation counsel may effectively raise it in court. A substantive power is therefore unnecessary.”[6]

In its resolution of 2 July 2024, III CZP 2/24, the Supreme Court adopted the second approach. It held that a litigation power of attorney suffices to raise an effective set-off defence under Article 203¹ and receive that declaration.

The reasons for the resolution are not yet available. A further article will follow their publication.

[1] Order of 15 December 2023, V AGa 278/22.

[2] Ł. Błaszczak in E. Marszałkowska-Krześ, I. Gil (eds.), Kodeks postępowania cywilnego. Komentarz, updated commentary, Legalis/el. 2024.

[3] Supreme Court judgment of 14 January 2009, IV CSK 356/08, LEX no. 492155.

[4] Katowice Court of Appeal order of 15 December 2023, V AGa 278/22, LEX no. 3669725.

[5] Ibid.

[6] Ibid.; A. Torbus in T. Zembrzuski (ed.), Kodeks postępowania cywilnego. Koszty sądowe w sprawach cywilnych. Dochodzenie roszczeń w postępowaniu grupowym. Przepisy przejściowe. Komentarz do zmian, vols. I and II, Warsaw 2020, Article 203¹.