Where public funds are spent in Poland, public investment is often a source of conflict between the public sector entities and businesses.
One of the business sectors most exposed to court litigation with the public sector in Poland is real estate and construction, particularly in infrastructure. Businesses complain about the lengthy proceedings. These are usually complex, with high dispute values, which require extensive evidence and specialist know-how, demanding the involvement of experts.
Not everything must be resolved in court
According to the World Bank's Doing Business 2018, pursuing claims in Warsaw takes an average of 685 days. For a business, this often means frozen assets, paused investments, and engagement in costly and time-consuming proceedings. For the public sector, large numbers of such expensive proceedings negatively affect the economy.
Remedies include the Act on the Support of Amicable Dispute Resolution Methods, which came into force on 1 January 2016. This new law has significantly strengthened mediation as an alternative to court proceedings.
How private mediation works? (source: International Mediation Centre in Warsaw www.mcm.org.pl)
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 (time to resolve the dispute and financial aspect).
Unfortunately, mediation with the public sector within real estate and infrastructure disputes is still a business dream. Civil servants are simply afraid of 'reaching an agreement' with companies, so as not to be accused 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 having the responsibility of resolving the conflict and determining the amounts of individual claims in the final judgment).
According to the activity reports of the General Council (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' (Act on Amendments to Certain Acts to Facilitate Debt Collection, 7 April 2017). Within this act, regulations which respond to the issue of mediation with the public sector came into force on 1 June 2017. They are amended provisions of the Public Finance Act and the Act on Liability for Violation of Public Finance Discipline.
The amendments introduced in these laws explicitly regulate conciliation with the public sector. They state that a public finance unit may conclude an agreement on a civil law debt if an assessment certifies that for that unit or respectively the State Treasury or the budget of the local authority, this agreement is more favourable than the probable outcome of court or arbitration proceedings (art. 54a of the amended Public Finance Act).
Another regulation gives guidelines regarding the assessment of such an agreement. It has to be in written form, taking into account the circumstances of the case, in particular the merits of the disputed claims, the possibility of satisfying 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. The requirement for mutual concessions, together with the liability rules for violation of financial discipline, has so far been one of the barriers to using 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 barrier for the public sector in undertaking mediation with firms. In the amended provisions, it states that the conclusion of an agreement, making public expenditure, or incurring or changing a liability does not constitute a breach of the public finance discipline – if they are the result of an agreement of the civil law debt in question, concluded in accordance with the (amended) Public Finance Act.
When the new regulations are implemented, practice will show that at least business will positively assess the amendments, as they provide a specific legal basis for mediating with the public sector.
One thing is sure: the costs of mediation proceeding in real estate disputes are significantly cheaper than conducting a long and costly court trial. Another important factor is that the agreement signed within the successful mediation can also be confirmed by the court and – at the end of the day – the parties will have a legal title comparable in law to the verdict of a court judge. The main difference of reaching this 'final title' which solves the dispute, is that mediation is much more time- and cost- efficient, less stressful and in many cases gives the parties the possibility to continue cooperation.
A simple comparison made on the basis of an average real estate case shows how expensive the court proceeding might be and how efficient in this respect mediation is.
Cost comparison: court proceeding vs. private mediation within International Mediation Centre in Warsaw