Investment involving public funds in Poland is often a source of conflict between public sector entities and entrepreneurs.
Practice shows that one of the most exposed sources of litigation involving the public sector in Poland is the real estate and construction industry, especially in the infrastructure sector. Entrepreneurs complain about the many months (often many years) the proceedings last. These are usually fairly complex proceedings, with very high dispute values, which not only require extensive evidentiary proceedings, but also, often, special know-how, demanding the involvement of multiple experts.
Not Everything Has to be Resolved in Court
According to the World Bank “Doing Business in Poland” report for 2016, claims in Poland take an average of about 685 days. For the entrepreneur, this often means “frozen” assets and engagement in costly and time consuming proceedings. For the public sector, these expensive proceedings negatively affect the economy.
Remedies for this situation come in the form of, among other things, the regulations of the Act on the Support of Amicable Dispute Resolution Methods, which came into force on January 1, 2016. This new law has significantly strengthened mediation as an alternative to court proceedings. While mediation in the private sector is now well received, the amount of settlements, especially with the public sector, is still not impressive, despite the advantages (which include the time to resolve the dispute and the lower costs involved).
Unfortunately, mediation with the public sector remains a business dream. Civil servants remain afraid that “concluding an agreement” with entrepreneurs will result in charges of public fraud. Therefore, when representing a unit of the public finance sector, they often prefer that the dispute be settled in court (and thus placing responsibility for resolving the conflict and determining the amounts of individual claims in the court’s final judgment).
According to the activity reports of the General Council for the Republic of Poland (the state body which represents state units in legal proceedings in court), in 2013, only 22 settlements out of 3,982 and in 2014 only 18 settlements out of 3,698 cases were concluded.
New “Mediation Tools” for the Public Sector
Another legislative initiative in this area has resulted in the development of the so-called “Debt Package” (the Act on Amendments to Certain Acts to Facilitate Debt Collection of April 7, 2017). The regulations in this act applicable to the issue of mediation with the public sector came into force on June 1, 2017. They are amended provisions of the Public Finance Act and the Act on Liability for Violation of Public Finance Discipline which explicitly regulate conciliation with the public sector by stating that a public finance unit may conclude an agreement on a civil law debt if an assessment certifies that the agreement is more favorable for that unit (or, where appropriate, the State Treasury or the budget of the local government unit) than the probable outcome of court or arbitration proceedings (art. 54a of the amended Public Finance Act).
Another regulation provides guidelines regarding the assessment of such an agreement. According to these guidelines, the assessment has to be in written form and has to take into account the circumstances of the case, in particular the merits of the disputed claims, the possibility to satisfy them, and the anticipated duration and costs of court or arbitration proceedings as an alternative.
The justification for the new regulations states that the pre-condition for concluding an agreement is that both parties are conciliatory and that the requirement for mutual concessions, in conjunction with the liability rules for violations of financial discipline has so far been one of the barriers to the use of mediation and other amicable means of resolving disputes.
The changes also enforced further amendments to the Law on Liability for Violation of Public Finance Discipline, which often constituted a “blockade” for the public sector in undertaking mediation with entrepreneurs. In the amended provisions it says that the conclusion of an agreement making public expenditure or incurring or changing a liability does not constitute a breach of public finance discipline if it is the result of an agreement of the civil law debt in question, concluded in accordance with the (amended) Public Finance Act.
Upon the implementation of the new regulations, practice will certainly demonstrate that at least entrepreneurs will positively assess the amendments as they provide a specific legal basis for mediating with the public sector.
By Ewelina Stobiecka, Partner, Taylor Wessing Warsaw
This Article was originally published in Issue 4.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.