17.4.2. Contingent liabilities

Information concerning significant proceedings in front of court, body appropriate for arbitration proceedings or in front of administration bodies in which the companies of the ORLEN Group act as the defendant:

I.P.-95 s.r.o. compensation claim against ORLEN Unipetrol RPA s.r.o.  

On 23 May 2012, ORLEN Unipetrol RPA s.r.o. received from the District Court in Ostrava a claim brought by I.P.-95 s.r.o. for compensation related to the filing by ORLEN Unipetrol RPA s.r.o. a motion for bankruptcy of I.P.-95 s.r.o. in November 2009. The total amount of the claim is approximately PLN 331 million, translated using the exchange rate as at 31 December 2021 (representing CZK 1,789 million). ORLEN Unipetrol RPA s.r.o. was one of eight defendants which were jointly and severally claimed. At the request of the I.P.-95 s.r.o proceeding was pending concerning the accession to the claim as plaintiff NESTARMO TRADING LIMITED. The court refused the Company permission to enter to the case. In February 2018, the court dismissed in entirety claim ruling in favour of ORLEN Unipetrol RPA s.r.o. On 3 April 2018, I.P.-95 s.r.o. appealed against the decision of the court of first instance. On 22 May 2018, the District Court in Ostrava obliged I.P.-95 s.r.o. to pay the appeal fee. On 11 December 2018, the court of second instance dismissed the appeal of I.P.-95 s.r.o. from the judgment of the District Court in Ostrava. The judgment is binding.  On 20 March 2019 I.P.-95 s.r.o. filed a cassation appeal against the judgment of the court of second instance. The cassation appeal of I.P. – 95 s.r.o. was dismissed. On 30 June 2021 the case has been legally closed. The I.P.-95 s.r.o. has the possibility to submit a constitutional complaint to the Czech Constitutional Court.

Claim of Warter Fuels S.A. (formerly: OBR S.A.) against PKN ORLEN for compensation

On 5 September 2014, OBR S.A. (currently: Warter Fuels S.A.) filled an action against PKN ORLEN with the District Court in Łódź for a claim for payment in respect of an alleged breach by PKN ORLEN of patent rights. The amount of the claim in the lawsuit was estimated by Warter Fuels S.A. in the amount of PLN 84 million. The claim covers the adjudged sum of money from PKN ORLEN for Warter Fuels S.A. in the amount corresponding to the value of the license fee for the use of the solution under the above patent and adjudge the obligation to repay the benefits derived from the use of this solution. On 16 October 2014 PKN ORLEN responded to the lawsuit. By the procedural document from 11 December 2014 the value of the dispute was referred to by the plaintiff in the amount of PLN 247 million. So far, several hearings have been held, during which witnesses submitted by the parties were heard by the court. On 19 December 2018, a hearing took place, during which the Court heard the parties’ position in the scope of the grounds for any repeal of the freezing order. By a decision of 2 January 2019 the Regional Court set aside the order granting security for claims. Warter Fuels S.A. submitted a complaint against this decision on 5 February 2019. PKN ORLEN submitted a response to the complaint. The matter of complaint consideration is at the stage of secondary proceedings, i.e. before the Court of Appeal in Łódź. The freezing order has been legally repealed.

The PKN ORLEN attorney submitted a request to suspend the proceedings due to parallel proceedings for determining the right to the disputed patent, the outcome of which will have significance for the resolution in the case of breach. As at the date of these consolidated financial statement the request has not been considered yet. The court has found an expert to issue an opinion also among foreign entities. The opinion in the case will be provided by the University of Technology and Economics. On 21 September 2021 Warter Fuels paid an upfront payment for that expert.  A full assessment of the risk of an unsuccessful decision may be made at a later stage of the proceedings, taking into account the arguments of PKN ORLEN. In the opinion of PKN ORLEN the claims of Warter Fuels S.A. are without merit.

POLWAX S.A. – ORLEN Projekt S.A. dispute

• Case filed by ORLEN Projekt against POLWAX for the payment of PLN 6.7 million, pending before the District Court in Rzeszów, case file no. VI GC 225/19

On 23 May 2019 the Court issued a warrant for payment to ORLEN Projekt in a writ of payment proceedings covering the entire amount claimed. On 27 November 2020, the District Court issued a judgment in the case, according to which (i) upheld the payment order in full with respect to the claimed principal amount of PLN 6.7 million as well as with respect to the overdue interest for delay in commercial transactions from 2 October 2019 to the date of payment; (ii) revoked the payment order issued dated on 23 May 2019 for the payment of a part of the overdue interest, i.e. in the amount of PLN 3 million from 11 January 2019 to 1 October 2019 and in the amount of PLN 3.7 million from 25 January 2019 to 1 October 2019.

Both parties appealed against the judgement, POLWAX appealed against it in its entirety, whereas ORLEN Projekt appealed against the part in which the Court revoked the payment order concerning payment of statutory overdue interest for delay in commercial transactions. Currently the case is considered by the Court of Appeals in Rzeszów under the file number I AGa 20/21.

• Case filed by ORLEN Projekt against POLWAX for the payment of PLN 67.8 million, pending before the District Court in Rzeszów, case file no. VI GC 201/19

In the case, ORLEN Projekt claims from POLWAX the payment of a total amount of PLN 67.8 million together with overdue interest for delay consists of: (i) remuneration for completed construction works and deliveries, (ii) unjustifiably executed performance guarantee, and (iii) costs related to ORLEN Projekt’s withdrawal from the contract. The court has already heard all the witnesses and parties in the case, the hearing has been postponed without setting a further date.

• Case filed by POLWAX against ORLEN Projekt for the payment of PLN 132 million, pending before the District Court in Rzeszów, case file no. VI GC 84/20

The claim submitted by POLWAX against ORLEN Projekt includes PLN 84 million for material damage and PLN 48 million for lost profits that were supposed to arise in connection with improper performance and non-performance of the contract by ORLEN Projekt. The proceedings have been suspended at the joint request of the parties. On 21 October 2021 the court, on the application of POLWAX, made an order to resume the suspended proceedings. No date has already been set for a preliminary hearing in the case.

• Case filed by POLWAX against ORLEN Projekt for the payment of PLN 9.7 million, pending before the District Court in Rzeszów, case file no. VI GC 104/20

POLWAX claims from ORLEN Projekt the payment of PLN 9.7 million together with overdue interest for delay consists of: (i) reimbursement of costs of removal and disposal of waste in the form of contaminated land from the Project area, and (ii) non-contractual storage of land from the Project area on plot no. 3762/70 belonging to POLWAX. In January 2022, three meetings on the case were held. Further hearings were held in March 2022. The next hearing is scheduled for 4 April 2022.

• Case filed by POLWAX against ORLEN Projekt for the removal of movable property, pending before the District Court in Tychy, case file no. VI GC 120/20

POLWAX demanded that the Court obliges ORLEN Projekt to restore the legal status by emptying warehouses submitted to ORLEN Projekt in order to store equipment and materials for the purposes of the conducted investment. So far, five hearings have been held in the case; the next hearing is scheduled for 25 April 2022.

In the opinion of ORLEN Projekt, the claim is without merit, therefore the company did not recognise the provision.

Technip Italy S.p.A. v ORLEN Unipetrol RPA, s.r.o.

In connection with the delay in execution of the Agreement concluded between Technip Italy S.p.A. („Technip”) and ORLEN Unipetrol for the construction of the Polyethylene Plant in Litvinov, Technip was obliged to pay contractual penalties for the delay in the amount of PLN 106 million, translated using the exchange rate as at 31 December 2021 (representing EUR 23 million). Technip did not pay the above mentioned contractual penalties to ORLEN Unipetrol, therefore ORLEN Unipetrol activated the bank guarantee in the amount of PLN 97 million, translated using the exchange rate as at 31 December 2021 (representing EUR 21 million).

On 17 August 2020, Technip called for arbitration. In November 2020, ORLEN Unipetrol claimed an offset of the remaining contractual interest from the invoice issued by Technip for the remaining part of the contractual remuneration: the outstanding amount of contractual interest for delay is PLN 8.3 million translated using the exchange rate as at 31 December 2021 (corresponding to EUR 1.8 million).

On 30 November 2020, ORLEN Unipetrol submitted a reply to the statement of claim and filed a counterclaim for the outstanding contractual interest for delay in the amount of PLN 8.3 million translated using the exchange rate as at 31 December 2021 (corresponding to EUR 1.8 million).

On 5 January 2021, Technip submitted an amendment to the demand for arbitration increasing the total amount of the claim to PLN 132 million translated using the exchange rate of 31 December 2021 (corresponding to EUR 28.8 million).

Technip, by filing for arbitration taking into account the submitted amendment, intends to obtain:

• payment of the amount of PLN 98 million, translated using the exchange rate as at 31 December 2021 (corresponding to EUR 21.3 million), representing the amount of unjustified payment under the bank guarantee by ORLEN Unipetrol;
• payment of the amount of PLN 34 million, translated using the exchange rate as at 31 December 2021 (corresponding to EUR 7.3 million) representing additional claims of Technip based on various circumstances and legal grounds mainly concerning works, additional services provided by Technip in connection with the Polyethylene Plant construction project;
• payment of the amount of PLN 0.9 million, translated using the exchange rate as at 31 December 2021 (corresponding to EUR 0.2 million) from the invoice issued by Technip, representing the remaining part of the contractual remuneration (which was offset by ORLEN Unipetrol in November 2020);
• payment of the amount of statutory interest for the entire due payment;
• dismissal of ORLEN Unipetrol’s counterclaim.

The arbitration proceedings are pending before the Court of Arbitration at the International Chamber of Commerce in Vienna. ORLEN Unipetrol RPA s.r.o. submitted its full position in the case on 6 August 2021. There was an interchange of preparatory letters between the parties. In February, a hearing took place.The next hearing is scheduled for April 2022.

In the opinion of ORLEN Unipetrol RPA s.r.o., Technip’s claim is without merit.

Contingent liabilities related to the ENERGA Group

As at 31 December 2021, the contingent liabilities of the ENERGA Group recognised in these consolidated financial statement of the ORLEN Group amounted to PLN 269 million.

The largest item of contingent liabilities of the ENERGA Group consists of legal claims relating to the power infrastructure of Energa-Operator SA located on private land. The Group recognises provisions for filed legal claims. If there is uncertainty as to the validity of the amount of the claim or legal title to land, the Group recognises contingent liabilities. As at 31 December 2021, the estimated value of those claims recognised as contingent liabilities amounts to PLN 249 million, while as at 31 December 2020 its value amounted to PLN 248 million. Considering the legal opinions, the estimated amounts represent a risk of liability of less than 50%.

Arbitration procedure brought by Elektrobudowa S.A. against PKN ORLEN

Elektrobudowa S.A. filed an action against PKN ORLEN with the Arbitration Tribunal of the Polish Consulting Engineers and Experts Association (SIDIR) of Warsaw (case No. P/SA/5/2019), seeking payment of a total of PLN 104 million and EUR 11.5 million. The case concerns performance of the EPC contract between PKN ORLEN S.A. and Elektrobudowa S.A. for the construction of a metathesis unit. The amount in dispute includes:

1. consideration of PLN 20.6 million and EUR 7.6 million plus statutory default interest, alleged to be payable under the EPC Contract to Elektrobudowa S.A. or, alternatively, to Citibank if the consideration is found to be payable to Citibank following assignment;
2. a fee of PLN 7.8 million and EUR 1.26 million plus statutory default interest accrued since 23 October 2018 for additional and substitute works, alleged to be payable to Elektrobudowa S.A. or Citibank (see above);
3. a claim of PLN 62.4 million plus statutory default interest since 27 December 2019 as remuneration by reference to which the lump-sum should be increased in favour of Elektrobudowa, or Citibank as above;
4. compensation of PLN 13.2 million and EUR 2.6 million plus statutory default interest accrued since 25 October 2019, alleged to be payable to Elektrobudowa S.A. for the harm it suffered as a result of wrongful drawdown of funds by PKN ORLEN under bank guarantees.

On 17 April 2020, PKN ORLEN submitted its defence. The Arbitration Tribunal has issued below rulings:

1. The interim judgement (No.1) of 7 January 2021, which concerns Elektrobudowa S.A.’s claims for recovery of PLN 0.3 million for the development of the ‘Post-overhaul Unit Commissioning and Start-up Manual’ (the “Manual”) and for recovery of a PLN 0.1 million surcharge for delivery of a stainless steel FA-2202 Nitrogen Treater adsorption unit in place of a carbon steel one (the “Adsorption Unit”).
2. The partial judgement (No.1) of 8 January 2021, which concerns PKN ORLEN’s counterclaim for reduction of the consideration due to Elektrobudowa S.A. by a total of PLN 0.01 million and EUR 4.6 million on account of defects found in the K-2302A and K-2302B compressors and in the drinking and utility water pipelines. The Arbitration Tribunal dismissed the PKN ORLEN’s counterclaim to reduce the claimant’s contractual lump-sum remuneration by a total of PLN 0.01 million and EUR 4.6 million.
3. The partial judgement (No. 2) of 3 February 2021, the Court awarded PKN ORLEN for Elektrobudowa the amount of PLN 4.3 million (17 invoices) and the amount of PLN 7 million (equivalent to EUR 1.62 million- 5 invoices) for VAT (in total: PLN 11.3 million), together with statutory interest for delay, and determined that the deductions made by the defendant were unjustified for the amount of EUR 0.7 million and the amount of PLN 3.5 million.
4. The partial judgement (No. 3) of 3 February 2021 ordering PKN ORLEN to pay the Bankruptcy Trustee the total amount of PLN 1.2 million net for partial payment of contractual remuneration (6 invoices), including statutory interest for delay until the date of payment.
5. The partial judgement (No. 4) of 3 February 2021 ordering the defendant to pay the claimant in the total amount of PLN 2.1 million and the amount of EUR 1.4 million for partial payment of contractual remuneration, together with statutory interest for delay until the date of payment and establishing the unjustified deductions made by the defendant for contractual penalties in the amount of EUR 1.9 million.
6. The partial judgement (No. 5) of 12 February 2021 ordering the defendant to pay the claimant in the total amount of PLN 1.3 million and the amount of EUR 2.5 million for partial payment of contractual remuneration (part of the net receivables resulting from 6 invoices, the VAT amounts of which were previously ordered in partial judgement No. 2), together with statutory interest for delay until the date.
7. The partial Judgment (No. 6) of 16 April 2021 discontinuing proceedings with respect to the amount of PLN 0.2 million due to the claimant’s withdrawal of the claim in this scope.
8. The interim judgement (No.2) of 5 July 2021 regarding Elektrobudowa’s claims for compensation of PLN 0.40 million and EUR 0.04 million in respect of remuneration for delivery of heater E-2213 and apparatus E-2308, in which the Adjudicating Team ruled that these claims are justified on principle. The interim judgement does not constitute an obligation on the part of PKN ORLEN to pay to the claimant the aforementioned amounts, but is a recognition of the Adjudicating Team to find Elektrobudowa as entitled to expect payment from PKN ORLEN for the aforementioned provided material services as additional and/or replaceable.
9. The partial judgement (No.7) of 3 September 2021 ordering the defendant to pay to the claimant the total amount of PLN 0.4 million with statutory interest for delay up to the date of payment of VAT amount from 3 invoices and part of the net amount due from 1 invoice.
10. The partial judgement (No.8) of 3 September 2021 ordering the defendant to pay to the claimant the total amount of PLN 0.7 million as part of the net amount due from 1 invoice with statutory overdue interest until the date of payment.
11. The interim judgement (No.3)  of 3 September 2021 regarding Elektrobudowa’s claims for compensation of PLN 0.02 million and EUR 0.8 million for delivery of ON/OFF valves with changed parameters and ESD valve additional delivery, in which the Adjudicating Team ruled that these claims are justified on principle. The interim judgement does not constitute an obligation on the part of PKN ORLEN to pay to the claimant the aforementioned amounts, but is a recognition of the Adjudicating Team to find Elektrobudowa as entitled to expect payment from PKN ORLEN for the aforementioned provided material services, as additional and/or replaceable.
12. The partial judgement (No.9) of 5 October 2021 ordering the defendant to pay to the claimant: (a) in point I of the judgement the amount of PLN 0.01 million in respect of remuneration for performing a solution analysis regarding an industrial furnace H-2202 together with statutory interest for delay until the date of payment and (b) in point II of the judgement the amount of PLN 0.1 milion net in respect of additional remuneration for delivery of FA-2202 adsorption unit (this amount has previously been the subject of an interim judgment (No. 1) and the settlement of the parties, referred to in point I above).

On 13 September 2021 the Bankruptcy Trustee extended the claim by PLN 13.2 million and EUR 2.6 million constituting a claim for return of the amounts retained as a Guarantee Deposit with statutory overdue interest from 24 March 2021 to the date of payment.

PKN ORLEN is not entitled to any appeal against the abovementioned judgements in the proceedings before the Court of Arbitration.

The principal receivables adjudged by partial judgements No 2, 3 and 4 were paid by PKN ORLEN to the Bankruptcy Trustee of Elektrobudowa S.A. on 31 May 2021 and 1 June 2021.

The principal receivables adjudged by the partial judgement No 5 were paid by PKN ORLEN to the Bankruptcy Trustee on 15 June 2021 and 17 June 2021. The Interest on the principal amounts paid under the partial judgements No. 2,3,4,5, was paid on 2 August 2021.

The principal receivables adjudged by the partial judgments (No 7) and (No 8) were paid by PKN ORLEN to the Bankruptcy Trustee on 19 November 2021. The interest on the principal amounts paid was paid on 14 December 2021.

The principal receivables adjudged by the partial judgment (No. 9) were paid by PKN ORLEN in full to the receiver.

The value of provisions recognised as at 31 December 2021 in connection with the pending proceedings with Elektrobudowa amounted to PLN 26 million.

Except of described above proceedings, the Group has not identified any other significant contingent liabilities.