New Year, New Civil Procedure

Beginning of a new year is often a time of various summaries, but it is also a time of novelties – even when it comes to judiciary.  In the new year, Polish courts must deal with a major amendment of code of civil procedure (kodeks postępowania cywilnego – KPC), probably the largest one in recent years. The new act is a good source material for a scientific paper, but today we will try to tackle the issue from a business perspective. What traps have been prepared by lawmakers, and what should one take into consideration while preparing for a case?

Back to the past –a separate commercial procedure

A key novelty for all types of entrepreneurs is a separate procedure for business entities, which did in fact exist in Polish legal system before. The main argument, laid out in favour of this procedure by supporters of the new act, is the idea of making such business-related procedures much faster. Speed of proceeding is crucial when it comes to financial aspects of enterprises and their ability to operate in general. Such important proceedings are, according to article 4582 § 1 KPC cases:

  1. Between entrepreneurs regarding private law issues related to their business activities;
  2. Arising from corporate law and litigations within companies;
  3. Arising from construction work contracts or other contracts, related to the construction process, directly linked with performance of such services;
  4. Arising from leasing agreements;
  5. Between organs of state-owned company;
  6. For appending an enforceability clause to an enforcement title, which is a decision of a commercial court or a settlement concluded before that court.

For every rule, there is an exception

Two exclusions have been established – both division of partners’ assets after cessation of partnership and cases relating to debt acquired from a non-entrepreneur, except when the debt arose on grounds of contract, related to business activity of all of its parties have been excluded from commercial cases. Division of assets itself is a classic civil court case, so there’s no wonder it has not been transferred to commercial courts. This type of case simply doesn’t fit there. The second exclusion has been established with enterprises dealing with purchase of debt in mind. Such debts have various sources, which do not necessarily fit within scope of commercial courts.

Certain elements of typical civil proceeding have also been excluded from this procedure, creating an interesting example among Polish civil procedures. Commercial procedure does not allow for addition of new claim instead or together with the ongoing one, except for a situation, where the new claim regards repetitive payments or other provisions which should be repetitive, such as monthly rent. It is also forbidden to change a subject of dispute for something different or its equivalent.

The whole scheme creates a reasonable balance between flexibility required by the very nature of commercial litigations, such as a possibility to include new unpaid invoices in the case, and the main goal of lawmakers – to make Polish courts faster.

It will still be possible to sue additional parties in the course of procedure or for third party to intervene in the procedure, but possibilities provided in articles 194-196 of KPC have been excluded as well, which means, among others, that a suit filed against a wrong party can no longer be ”saved” by indicating another, appropriate party. Such a mistake will lead directly to lost case and lost money. Extreme caution must be then taken, when there is a need to file a suit against a company, in order to check if it really is the legal person we need to get into litigation with, or is it just a different subject somehow related to an appropriate party.

Furthermore, it is impossible to suspend procedure due to absence of parties in court, so parties will no longer be able to bring court proceedings to a halt by simply disregarding calls to appear in court. It should also be kept in mind, that within commercial procedure there is no possibility to use counterclaim within one litigation, or to hand a case over to a district court already dealing with a related case.

These last two exclusions are rather pointless – to forbid possibilities much more beneficial for both sides – courts and parties. Without these options, there will be not one but two separate proceedings burdening both entrepreneurs and judges.

Oblig@tory e-mail address

Novelties outlined above are not the only ones, as there has to be mentioned one more crucial, yet completely pointless trait of commercial cases – an obligation to include e-mail address (or a separate declaration of lack of such an address) of all parties in their first documents sent to a court. According to the original concept of lawmakers, the e-mail had been supposed to be an additional way of communication between court and parties not using legal aid, used to send messages and non-defined support for such parties. Nature and form of such support still remain unknown, and as a result, provision of e-mail address hardly changes anything. On the other hand, lack of information regarding e-mail is a major formal deficiency leading to serious consequences. Apparently, we have to deal with a serious error in legislation, and still include e-mails whether it makes sense or not.

The need for speed

We also have to keep in mind, that two important periods have been shortened – both time for discontinuance of a suspended proceeding and for motion of resuming the case have been cut in half.

There are also new deadlines applying to work of courts. Now there is only one month to delegate an issue not being a commercial one to a non-commercial court, or to delegate a commercial case to commercial court by an invalid one. The one month-period starts when parties engage in dispute and is supposed to prevent prolonged disputes as to which court is the proper one in the case. Commercial cases put additional pressure on court and its president, as they should work on every case in a manner, that will lead to a conclusion in no more than six months. Obviously, this is not a fixed, strict deadline, but rather an emphasis on pace of proceeding. Each case is different, and one cannot expect, that every one of them will be over in half an year, regardless of external factors, such as the sheer number of documents that need examination. Courts retain all the right to work on a case for more than six months, if there is a need to do so. On the other hand, the six-month term implies that judges should be in hurry – and while speed is an important contribution to efficient legal system, other values and overall quality of court proceedings should not be surrendered in the name of speed.  

Both sides of litigation are „hurried” by the new legislation as well, for example because of the requirement to lay out all claims and evidence in their first documents within the litigation. There will be no possibility to keep an ace up one’s sleeve for later.

Mediation as a great bargain?

Entrepreneurs should also focus on new regulations in regards to costs of court proceeding. They have been clearly amended in order to fulfil not only financial, but also an incentive aspect of such costs. That should come as no surprise– inflation and continuous rise of virtually all prices must have sooner or later led to subsequent rises of court costs. This is particularly relevant in the area of civil proceedings, where the amounts of controversy rise just as rapidly as payments, salaries and other financial sums brought to court. Furthermore, when court proceedings become disproportionately cheap, it is easier to start multiple proceedings without a second thought – and often without much sense, either. That’s why motivation is a particularly important aspect of new prices – such considerable costs may discourage from placing further burdens on overloaded courts, while at the same time encourage to look for alternative methods of dispute settlement.

Amongst many changes, the ones implemented with regards to commercial proceedings are particularly important for entrepreneurs. While earlier on various company-related procedures costed 2.000,00 PLN, they now cost more than twice as much – 5.000,00 PLN. Such proceedings must occur sooner or later while managing a company, so there is no general way to avoid them.

The largest and most discouraging change occurred in the field of proportional costs. Until November, they amounted to 5% of amount of a matter of dispute, but not less than 30 PLN and not more than 100.000,00 PLN. Now, however, cost thresholds have been introduced:

1) when amount of controversy is smaller than 500 PLN, the cost amounts to 30 PLN;
2) between 500 PLN and 1.500 PLN: 100 PLN;
3) between 1500 PLN and 4000 PLN: 200 PLN;
4) between 4000 PLN and 7500 PLN: 400 PLN;
5) between 7500 PLN and 10.000 PLN: 500 PLN;
6) between 10.000 PLN and 15.000 PLN: 750 PLN;
7) between 15.000 PLN and 20.000 PLN: 1000 PLN.

If amount of a matter of dispute is bigger than 20.000,00 PLN, cost will still be 5% of the amount, but such cost may now reach up to 200.000,00 PLN. The first draft of amendment provided up to 500.000,00 PLN, but even the final version constitutes a striking change in overall costs of proceedings. Interestingly, when it comes to the thresholds, litigations concerning smaller amounts are proportionately more expensive than the ones concerning major amounts. 100 PLN of costs for a litigation on 500 PLN is 20% of the amount, while a litigation on 10.000 PLN costs only 5% of this amount.  

Major changes within payment system are supposed to reduce flow of new cases into already overburdened courts, and they may be extremely successful in this aspect.  High-priced proceeding raises questions both for debtor –” Does it really make sense to avoid payment and wait until we end up in expensive court?” as well as for creditor –” Is court proceeding really necessary at this stage?” In comparison with expensive litigation, mediation and other arbitral means of dispute settling seem much more convenient than they were before.

Bailiff instead of a postman

Authors of the new civil procedure declared war on plague of undelivered court notices by introduction of new article 1391. According to the new article, if defendant will not receive, after a second notice, the first document addressed to him which requires his defensive actions – so, in most cases, a lawsuit – the court will order plaintiff to deliver the document using bailiff’s services.

Bailiff’s delivery is in general more reliable than delivery by postal service, and can provide a correct, real address of defendant – bailiff has obviously more possibilities to check whereabouts of the defendant and find him than a regular postman. There are two months for a bailiff’s delivery. If this attempt turns out to be unsuccessful as well, the plaintiff is obliged to inform the court about this outcome, while providing the court either with the address of defendant acquired by bailiff, or evidence supporting the address provided by the plaintiff in his lawsuit. Such evidence may consist of invoices or contracts, in which the defendant himself mentions his address. It’s useful to prepare such evidence in advance – failure to observe the new regulations will lead to suspension of proceeding.

Most of all, the modification is an additional burden for plaintiff. Until now, inclusion of defendant’s address was perfectly enough, even if plaintiff knew that the address is wrong, and two failed deliveries to this address would lead to legal fiction of delivery. From now on, it will take much more effort.

A nod to consumers

Certain complications will emerge from new wording of article 31 §2 of the KPC, which excludes all kinds of alternative jurisdiction against consumers. All types of litigation will have to be filed in local courts of consumer’s place of living.

What’s next?

Changes introduced last year make up an impressive list, although it will take months, or maybe even years to properly assess whether their positive impact on Polish judiciary was just as impressive. On the other hand, lack of proper knowledge of new requirements may not only prolong litigations, but also result in terrible losses to a party which is not as up to date with legal developments as the other one. New provisions require much more knowledge and professionalism from businessmen trying to prove their rights in a court. Simple strategies and smart tricks, widely available on legal forums or in free guides have become not only largely useless, but also dangerous – maze of altered norms can easily lead to unexpectedly big costs of proceedings, or to a failure that would be essentially one’s own fault. That’s why it has become even more relevant to put one’s trust in professional legal assistance, that will help and represent an entrepreneur in accordance with current legal norms.

New year may very well bring us commercial court cases solved quicker than before. Such a quick, successful outcome will be attainable only with a proper preparation of all procedural documentation to support them.

Author: Filip Walczak