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The exclusion of a limitation period for the recovery of insurance premium receivables secured by a mortgage P 2/18

The exclusion of a limitation period for the recovery of social insurance premium receivables secured by a mortgage does not violate the principle of the equal protection of ownership and other property rights.

On 20 May 2020 at 10.00, the Constitutional Tribunal delivered its ruling on the question of law, referred by the Circuit Court in Gliwice (the 8th Division – Labour and Social Insurance), pertaining to the exclusion of a limitation period for the recovery of insurance premium receivables secured by a mortgage.

The Constitutional Tribunal adjudicated that Article 24(5) of the Act of 13 October 1998 on the Social Insurance System – insofar as it excludes a limitation period for the recovery of insurance premium receivables secured by a mortgage – is consistent with Article 64(2) of the Constitution of the Republic of Poland. The Tribunal discontinued the proceedings as to the remainder. The ruling was adopted by a majority vote. In the first place, the Tribunal addressed differences between liabilities arising from unpaid social insurance premiums and tax liabilities. The Tribunal pointed out that what primarily distinguished social insurance premiums from taxes is that the former are reciprocal in character and are intended for a special purpose. Unlike taxes, social insurance premiums are not included in the state budget or the budgets of local self-government units, but the premiums directly flow into the account of the Social Insurance Institution. They constitute one of the major sources of revenue for the Institution. They considerably impact its financial situation, which in turns affects the financial situation of insured persons, who are eligible to receive benefits. The equivalent nature of a social insurance premium means its correlation with a reciprocal benefit paid by the Institution. This is not full equivalence in a capital sense, but such that is set by statute in view of the principles of equality and solidarity. Consequently, failure to pay social insurance premiums by insured persons burdens the Institution with covering benefits, and hence this also indirectly burdens those payers who fulfil their obligations.

Moving on to examining the conformity of Article 24(5) of the Act on the Social Insurance System to Article 64(2) of the Constitution, the Tribunal took account of the significance of the challenged provision for the functioning of the social insurance system, as well as for payers who are lagging behind with the payment of premiums.

The legislator’s obligation to organise a social security system comprises the development of structures which make it possible to collect funds, manage them, as well as use them to finance various types of benefits. When implementing constitutional guarantees within this scope, the legislator should, on the one hand, take account of existing social needs and, on the other hand, consider the possibilities of satisfying them. The swift functioning of the social security system is contingent not only on a model of that system adopted by the legislator, but also on the timely payment of benefits that are due.

The Tribunal also took account of highly complex consequences within the scope of owners’ life, financial and economic interests that are caused by the recovery of debts from property which is required to be secured by a mortgage, in particular for those owners who carry out their business activity with the use of such property. The possibility of deferring the date of payment – and in particular the payment of receivables in instalments, concurrent with the exclusion of a limitation period, where arrears are secured by a mortgage – provides for a longer period for the payment thereof without any need to institute recovery proceedings. A mortgage debtor still remains the owner of his/her immovable property. The said debtor may use the property, receive proceeds, and may dispose of the property.

The application of an alternative solution – one that is required by the court referring the question of law, which entails that the liabilities of all insurance premium payers – regardless of their assets and forms of securing them – will be subject to a limitation period, which will lead to seriously detrimental effects for many persons and entities. The Tribunal stressed that the function of limitation periods, by virtue of their nature, is not to relieve debtors from the obligation to pay accrued insurance premiums, but to motivate, prod authorities to promptly undertake debt recovery activities. Therefore, so as to avoid the lapse of the limitation period, in every case, authorities will be forced – regardless of the circumstances of an insurance premium payer – to carry out the recovery of relevant debts from the property securing the debts. For persons and entities carrying out their business activity by using assets constituting mortgaged property, this would entail the lack of possibility of further continuing the activity, even if there could be prospects of overcoming financial difficulties in the future. Whereas such circumstances need not to be taken into account as regards the lapse of limitation periods for the liabilities of insurance premium payers who do not possess property which is required to be secured by a mortgage, in the case of the payers for whom such mortgaged assets constitute an immanent component of their business activity – any regulation of the running of the limitation period for those last-mentioned payers should take account of such circumstances.

Thus, in certain situations, Article 24(5) of the Act on the Social Insurance System may protect the owner of mortgaged property against the expropriation of housing property or property that is indispensable for carrying out business activity in the course of debt recovery proceedings.

The Tribunal stressed that Article 24(5) of the Act on the Social Insurance System not only renders the legal institution of mortgage collateral as a more effective means of recovering liabilities and permits more flexibility when adjusting the payment of receivables to the possibilities of a given debtor, but it also, to some extent, secures the interests of insurance premium payers. The said provision comprises the guarantees of the protection of rights for both the creditor and the mortgage debtor. Mortgage, in principle, protects the receivables of the creditor in full, i.e. both with regard to the whole amount as well as accrued interest. By contrast, the lapse of the limitation period leads to a significant restriction of the creditor’s rights. After the lapse of the said period, interest is no longer accrued and receivables may only be recovered from mortgaged property. After the lapse of the limitation period, the debtor may effectively refrain from satisfying the liability in the part that was not paid by the amount recovered. Indeed, the rest of the liability – i.e. the part that exceeds the value of mortgaged property – expires.

The composition of the adjudicating bench of the Constitutional Tribunal in the present case: Judge Justyn Piskorski – Presiding Judge; Judge Leon Kieres – Judge Rapporteur; Judge Krystyna Pawłowicz; Judge  Piotr Pszczółkowski; Judge Rafał Wojciechowski.