How to properly formulate a fraudulent transfer claim against a third party: Conclusions from Supreme Court of Poland rulings | In Principle

A claim to set aside fraudulent transfers to a third party (Art. 527 et seq. of the Civil Code) must precisely identify both the parties and the subject matter in the demand for relief set forth in the statement of claim. It is a mistake to assume that the trial court will seek out the missing elements in the justification for the statement of claim.

It is commonly known that if a debtor performed a transaction rendering itself insolvent or insolvent to a higher degree, or (at least) making it difficult to enforce a claim against the debtor, a creditor may file a statement of claim seeking to set aside such a transaction benefitting a third party. But some practitioners have trouble correctly formulating a claim to set aside a fraudulent transfer (sometimes called a “Pauline action”). As a recent ruling by the Supreme Court of Poland (judgment of 16 September 2021, case no. V CSKP 108/21) makes clear, mistakes in formulating the relief sought in a claim against a fraudulent act benefitting a third party may cost the creditor loss of the case in circumstances where it seemed that the case was “unloseable.”

In the case under discussion, in the prayer for relief (petitum) against a transfer benefitting a third party, the creditor did not precisely identify the creditor’s own claims against the debtor or the basis for its claims. It was only in the justification for the statement of claim that the creditor explained that it held a number of claims against the debtor, on several grounds, and indicated the total amount of its claims.

That might seem to be enough. Indeed, earlier cases from the Supreme Court had taken the view that the claim protected by the claim against a fraudulent transfer to a third party does not have to be stated in the demand, but it is sufficient to include it in the justification for the statement of claim (Supreme Court judgments of 29 November 2017, case no. II CSK 86/17, and 3 April 2019, case no. II CSK 105/18). And yet here the creditor lost the case due to an overly broad (insufficiently particularised) demand to set aside the allegedly fraudulent transfer to a third party. The creditor could have anticipated this if it had scrupulously researched other approaches to this issue in the case law and practice.

In the case law of the Supreme Court, the position is well-established that a judgment setting aside a transaction must specify the protected claim in terms of both the parties and the subject matter (e.g. Supreme Court judgments of 20 February 2015, case no. V CSK 305/14, and 9 May 2019, case no. IV CSK 493/18).

The Supreme Court has long held that a fraudulent transfer claim is available only when the claim which the creditor holds against the debtor is real and concrete. The court has also held that a fraudulent transfer action does not protect all of the claimant’s unspecified rights, but only a specific claim arising from a defined legal relationship constituting the subject of the demand, and thus the subject of the court decision. As a consequence of this position, a legal view arose in the decisions from the Supreme Court that the claimant must indicate which of its claims are to be protected (e.g. Supreme Court judgments of 27 November 2003, case no. III CKN 355/01, and 13 October 2010, case no. I CSK 594/09).

In the grounds for the judgment of 16 September 2021 (case no. V CSKP 108/21), the Supreme Court referred to the latter approach in the case law and in that spirit interpreted for the purposes of this case the provisions relevant to formulation of the demand. The court pointed out that under Art. 187 §1(1) of the Civil Procedure Code, a statement of claim should contain a precisely specified demand, and this rule correlates with Art. 321 §1, banning the court from ruling on a subject not included in the demand or in excess of the demand. As the protected claim must be specified in the operative part of the judgment, the claimant must specify the claims for which it seeks protection against a fraudulent transfer to a third party. Moreover, the claimant may demand that a fraudulent transfer be declared ineffective only with respect to certain debts owed by the debtor. It is also possible that the conditions for declaring a transaction ineffective will not be met with respect to all of the claims held by the creditor. The court’s task is to assess the legitimacy of the action, including, for example, assessment of the debtor’s insolvency and harm to the creditor, which is impossible without first identifying the exact claim to be protected. An independent determination by the court of the claim giving rise to the demand would violate the principle of equality of the parties and would constitute an intrusion by the court into the sphere of the parties’ framing of the relief sought before the court.

According to this position of the Supreme Court, the demand to set aside a fraudulent transfer to a third party must be precisely defined, in terms of the parties and the subject matter, so there is no doubt as to the subject matter of the proceeding and against whom the claimant asserts certain rights. These elements must be specified in the demand for relief. The trial court cannot be required to look for elements of the demand in the justification for the statement of claim, the role of which is to present the factual circumstances supporting the demand.

The precise statement of the demand serves to establish the court’s subject-matter jurisdiction in the case, while the indication of the factual circumstances justifying the demand leads to identification of the facts relevant for resolving the case, and then verification whether they must be proved. If the claim deserving of protection is not specified in the demand in both amount and basis, the court cannot verify whether the claimant has met the prerequisites set forth in Art. 527 of the Civil Code.

It is also relevant here that the judgment in a fraudulent transfer claim is not a judgment against the debtor (although a prerequisite for issuing the judgment is precise establishment of the creditor’s claim against the debtor), but is a judgment against a third party who obtained a financial gain from the debtor to the detriment of the creditor. The result of such a judgment will be an obligation of the third party to undergo enforcement carried out by the creditor against specific assets of the third party (acquired on the basis of transactions with the debtor), up to the value of the claim against the debtor specified by the creditor. Therefore, the third party liable out of assets acquired from the debtor is entitled to know what claim, and up to what amount, it must satisfy (or face enforcement).

Therefore, when formulating a demand to set aside a fraudulent transfer to a third party, the creditor must carefully specify all the necessary elements. Especially if the creditor holds multiple claims against the same debtor, it should bear in mind that perhaps not all of them deserve protection in an action against a fraudulent transfer to the third party. So when pursuing a fraudulent transfer claim, counsel must remain abreast of the case law from the Supreme Court.

Jan Ciećwierz, adwokat, Adam Studziński, adwokat, Dispute Resolution & Arbitration practice, Wardyński & Partners