Asymmetric Risk Allocation in Currency Option Structures: A Doctrinal Analysis of Polish Supreme Court Jurisprudence
Introduction
Between 2013 and 2018, the Polish Supreme Court (Sąd Najwyższy) rendered a series of decisions addressing the validity of asymmetric currency option structures marketed to commercial enterprises by financial institutions. These rulings have been invoked, often imprecisely, as categorical condemnation of banking practices in the derivatives market. The jurisprudential reality, however, reveals considerably greater doctrinal nuance. A rigorous examination of this case law assumes renewed practical significance as financial institutions have recommenced offering structurally analogous products, and market participants require precise understanding of the boundaries of legal protection.
I. The Structural Mechanics of Contested Instruments
The instruments at issue—colloquially denominated “zero-cost” option structures—combined two discrete transactions. The commercial enterprise acquired from the bank a put option, conferring the right to sell foreign currency at a predetermined exchange rate. Simultaneously, the enterprise wrote a call option in favor of the bank, thereby assuming an obligation to sell currency. The respective option premiums offset one another, creating the superficial appearance of costless hedging.
The asymmetry manifested on two distinct planes. First, with respect to notional amounts: the enterprise might possess the right to sell, for example, €100,000 monthly when the Polish złoty appreciated, yet bore the obligation to sell €200,000 when the złoty depreciated—a two-to-one disparity. Second, regarding barrier provisions: the enterprise’s potential profit was capped at a specified threshold (e.g., PLN 120,000), whereas its potential loss remained theoretically unbounded. The bank secured its position through a knock-out barrier entitling it to terminate the structure upon reaching specified exchange rate levels; the enterprise received no corresponding protection.
II. Three Decisions, Three Analytical Frameworks
A. The Judgment of September 19, 2013 (I CSK 651/12): Foundational Principles Without Automaticity
The dispute concerned a plastics manufacturing company that had entered into option transactions exhibiting the characteristic asymmetric structure: put options on €100,000 against call options on €200,000, with a barrier extinguishing the company’s gains at a predetermined level while leaving its potential losses unlimited.
The official holding appears, at first instance, favorable to financial institutions: “The disproportionate allocation in a currency option contract of the risk of obtaining benefits and the non-equivalence of the parties’ performances, where one party is a bank, does not constitute a violation of principles of contractual fairness and honest dealing sufficient to render the contract void pursuant to Article 58 § 2 of the Civil Code.”
The Court’s reasoning, however, proceeds considerably further than this formulation might suggest.
The Supreme Court fundamentally questioned the premise of parity in professional sophistication between the parties. The opinion observes: “with respect to transactions in the domain of monetary exchange, it is difficult to evaluate equivalently the professionalism of a bank and that of a company engaged in plastics processing which does not have within the scope of its business activity—as evidenced by the register of entrepreneurs in the National Court Register—either currency trading or activity in the field of financial instrument transactions.”
This determination undermines the standard defense advanced by financial institutions—namely, that because both counterparties are commercial entities, the maxim volenti non fit iniuria should govern.
The Court further identified structural deficiencies in the contractual architecture itself: “the structure of transactions adopted by the parties contained only on the side of the defendant Bank a so-called barrier rate, that is to say, a specified value of the euro against the złoty exchange rate, the attainment of which resulted in the dissolution of the entire option structure, which was advantageous only for the Bank.”
Of particular doctrinal significance is the passage addressing the bank’s quasi-advisory function: “The Bank, in proposing the conclusion of a contract of content merely accepted by the other party, without naming it as such, rendered advisory services to its counterparty, because one may reasonably suppose in the circumstances of this case that only the bank could evaluate the actual soundness of the proposal made to a specific entity.”
The Court mandated application of informational standards derived from the MiFID directives notwithstanding the absence of formal transposition at the time the transactions were executed, invoking the obligation of pro-Community interpretation of Polish law. These standards require “directing all information to clients in a manner that is clear, reliable, and not misleading” and “including warnings about risk in such a way that they are comprehensible and enable informed decisions to be made.”
Notably, the Supreme Court addressed directly the argument that the company had previously concluded 142 similar transactions and should therefore be deemed cognizant of the attendant risks: “The fact that the plaintiff Company knew the legal conditions of the contracts concluded and that it had concluded many similar transactions previously does not in any way render these contracts capable of being recognized as fair in their essential character.”
The procedural outcome merits emphasis: the Court vacated the judgment of the Court of Appeals and remanded for further proceedings. The Supreme Court did not adjudicate the invalidity of the transactions but rather delineated the criteria requiring examination.
B. The Judgment of September 27, 2013 (I CSK 761/12): The Boundaries of Contractual Freedom
In this matter, the Court of Appeals had ruled in favor of the commercial enterprise, determining that an option contract specifying a premium of “€0” had not been effectively concluded due to the absence of agreement on an essential element of the contract.
The Supreme Court reversed. It held that “an agreement that the premium shall equal zero, and thus shall not in fact be collected by the party that would be entitled thereto, falls within the scope of contractual freedom arising from Article 353¹ of the Civil Code.” The Court added that contracting parties “should have the freedom to shape at will the content of a given contract, also taking into consideration other contracts concluded by them, the entirety of which affects the outcome of their financial settlements.”
This decision is frequently cited as endorsement of the permissibility of zero-cost structures. The procedural context, however, counsels caution in drawing such expansive conclusions. The Supreme Court vacated a judgment favorable to the enterprise not because it deemed the transaction valid and fairly constructed, but because the Court of Appeals had adopted an erroneous legal basis—the nonexistence of the contract due to absence of a premium. The matter was remanded for reconsideration, where alternative grounds for invalidity could be examined.
The judgment simultaneously confirms the necessity of examining the totality of relations between the parties pursuant to Article 65 § 2 of the Civil Code, which mandates that in interpreting a contract, courts consider “not only its literal wording but examine above all the concordant intention of the parties and the purpose of the contract.”
C. The Judgment of March 16, 2018 (IV CSK 250/17): Doctrinal Consolidation
This case assumes particular significance because the Supreme Court dismissed the bank’s cassation appeal, thereby definitively confirming the invalidity of the transactions and divesting an enforcement title (bankowy tytuł egzekucyjny) of executory force with respect to a claim exceeding seven million złoty.
The transactional structure was typical: put options on €200,000 against call options on €400,000, with a barrier extinguishing the enterprise’s gains at PLN 120,000 while leaving its risk of loss unlimited.
The Supreme Court affirmed the lower courts’ findings regarding breaches of informational obligations. The bank had delivered risk disclosures “only after the conclusion of the disputed transactions”—appending them to an amendment to the framework agreement executed more than two months after the transactions were consummated. These disclosures “were convoluted and of little comprehensibility for the plaintiff, who was not a professional in the financial market.” Bank employees “provided information characterized by a high degree of generality, not explaining reliably the risk associated with the offered financial instruments.”
The Court emphasized that “a finding of breach of informational obligations by a bank presenting a draft option contract, possessing at the time of its conclusion knowledge of the disproportion of performances to the detriment of the counterparty, and obtaining in this contract specified rights only for itself, may evidence a violation of the principles to which Article 58 § 2 of the Civil Code refers.”
The judgment contains a further significant holding concerning settlement agreements. The parties had, subsequent to executing the disputed transactions, concluded a settlement (ugoda) regulating the terms of the enterprise’s payment obligations. The Supreme Court determined that the invalidity of the underlying transactions entails the invalidity of the settlement: “A settlement does not create a new legal relationship but leads to the specification or modification of an already existing relationship. There are therefore no grounds for recognizing that the subject settlement remains in force to the extent that the parties settled the claim encompassed thereby.”
III. Doctrinal Synthesis
The Supreme Court’s jurisprudence does not establish automatic invalidity of asymmetric option structures. It does, however, articulate an evaluative standard incorporating several determinative elements.
First, the mere fact of conducting commercial activity does not render an enterprise a professional in financial instruments. This status must be assessed through the lens of the actual scope of business activity disclosed in the register of entrepreneurs and the entity’s genuine competencies in currency trading.
Second, a bank offering option structures performs a de facto advisory function, even absent formal provision of investment advisory services. This follows from the circumstance that the bank prepares the draft contract, possesses knowledge of transactional mechanics unavailable to the counterparty, and is capable of evaluating the appropriateness of the product for the specific client.
Third, the bank’s informational obligations transcend formal delivery of documentation. Information must be communicated prior to the conclusion of the transaction, in a manner comprehensible to the specific recipient, with explicit identification of risk scenarios and maximum potential loss.
Fourth, the enterprise’s prior experience with similar transactions does not cure structural defects in the contract nor discharge the bank from its informational obligations.
Fifth, a settlement agreement concluded for the purpose of regulating obligations arising from an invalid transaction does not create a new, valid legal relationship.
IV. Unresolved Questions
The jurisprudence leaves open several questions of practical consequence.
Where lies the threshold of professionalism? The Supreme Court spoke unequivocally regarding a plastics processing company. It remains unclear, however, how courts should evaluate a trading enterprise regularly conducting currency operations, a firm maintaining a finance department with qualified personnel, or a company engaging external financial advisors in connection with transactions.
What informational standard suffices? The Supreme Court requires information that is clear, reliable, and not misleading. It is uncertain, however, whether mere delivery of a properly prepared document satisfies this standard, or whether the bank must ascertain the client’s comprehension. Must information be provided in writing, or is oral communication with telephonic confirmation permissible?
How should client-initiated structural modifications be treated? Where an enterprise actively negotiated transactional terms or itself proposed specific parameters, does this circumstance affect the assessment of the bank’s informational obligations?
V. Legal Remedies Available to Commercial Enterprises
A. Invalidity for Contravention of Principles of Social Coexistence (Article 58 § 2 in conjunction with Article 353¹ of the Civil Code)
This constitutes the primary avenue arising from the analyzed jurisprudence. The enterprise should demonstrate cumulatively: asymmetry of contractual structure (unequal notional amounts, unilateral knock-out barriers); breach of informational obligations by the bank (absence of information, information delivered post-execution, information that is incomprehensible or misleading); and disproportion in the parties’ professional sophistication with respect to financial instruments.
Claims for restitution of performance rendered under an invalid contract are subject to general limitation periods—three years from the date of claim maturity in the case of commercial entities.
B. Error as to the Content of the Juridical Act (Article 84 of the Civil Code)
Where an enterprise concluded a transaction under the belief that it served to hedge export operations, whereas objectively it bore a speculative character, the enterprise may invoke error as to the content of the juridical act (błąd co do treści czynności prawnej).
The requisite elements are: material error—such as would justify the supposition that had the declarant not acted under the influence of error, he would not have made a declaration of that content; and error induced by the other party or of which that party knew or could easily have ascertained.
The limitation period for making a declaration avoiding the legal effects of a declaration of will is one year from discovery of the error (Article 88 § 2 of the Civil Code). The declaration must be made in writing.
C. Extraordinary Change of Circumstances (Article 357¹ of the Civil Code)
This provision permits a party to seek judicial modification or dissolution of a contract upon occurrence of an extraordinary change of circumstances. The requisite elements are: a change of circumstances of extraordinary character (e.g., the 2008 financial crisis, pandemic, armed conflict); excessive difficulty in performing the obligation or threat of gross loss to one party; absence of foreseeability of the change by the parties at the time of contracting; and causal nexus between the change of circumstances and the difficulty or threat of loss.
A claim under Article 357¹ may be pursued for so long as the obligational relationship subsists. The court possesses competence to specify the manner of performance, the amount of the performance, or even to decree dissolution of the contract.
VI. Implications for Prospective Transactions
Derivative instruments currently offered under designations such as “risk reversal” or “hedging structures” may incorporate mechanisms analogous to those that were the subject of judicial disputes. Prior to executing any transaction, a commercial enterprise should verify: symmetry of option notional amounts in both directions; existence and unilaterality of knock-out or knock-in barriers; maximum loss scenarios under extreme exchange rate movements; costs and consequences of early termination; and adequacy of the structure relative to the enterprise’s actual currency exposure.
Pre-contractual documentation should be preserved together with electronic correspondence and memoranda of telephone conversations. In the event of dispute, the burden of proving discharge of informational obligations rests with the bank; nevertheless, the enterprise should be positioned to demonstrate the scope of information actually received.
Conclusion
The Polish Supreme Court’s jurisprudence on asymmetric currency option structures represents a sophisticated attempt to balance contractual freedom against the informational asymmetries inherent in transactions between financial institutions and their commercial counterparts. While declining to adopt a categorical rule of invalidity, the Court has articulated a framework that places substantial weight on the quality and timing of risk disclosure, the structural fairness of the bargain, and the relative sophistication of the parties. As similar products reenter the market, these doctrinal principles assume renewed practical significance—offering both a retrospective remedy for aggrieved enterprises and prospective guidance for those contemplating hedging arrangements.
Author: Robert Nogacki, Licensed Legal Counsel (radca prawny), Managing Partner, Kancelaria Prawna Skarbiec
Founder and Managing Partner of Skarbiec Law Firm, recognized by Dziennik Gazeta Prawna as one of the best tax advisory firms in Poland (2023, 2024). Legal advisor with 19 years of experience, serving Forbes-listed entrepreneurs and innovative start-ups. One of the most frequently quoted experts on commercial and tax law in the Polish media, regularly publishing in Rzeczpospolita, Gazeta Wyborcza, and Dziennik Gazeta Prawna. Author of the publication “AI Decoding Satoshi Nakamoto. Artificial Intelligence on the Trail of Bitcoin’s Creator” and co-author of the award-winning book “Bezpieczeństwo współczesnej firmy” (Security of a Modern Company). LinkedIn profile: 18 500 followers, 4 million views per year. Awards: 4-time winner of the European Medal, Golden Statuette of the Polish Business Leader, title of “International Tax Planning Law Firm of the Year in Poland.” He specializes in strategic legal consulting, tax planning, and crisis management for business.
