POLAND

1.LEGAL SYSTEM

2.LITIGATION

3.BUSINESS CRIME

4.INSOLVENCY

5.ARBITRATION

6.ENFORCEMENT

7.PRACTICE TIPS

8.CONTACT

The Polish legal system is based on codified principles of civil law. Judicial precedents are not binding; however adjudicating courts do take other rulings in similar cases into consideration.

The Polish court system is composed of District Courts (Sąd Rejonowy), Regional Courts (Sąd Okręgowy), Courts of Appeal (Sąd Apelacyjny) and the Polish Supreme Court (Sąd Najwyższy). Within the above framework there are specialised court divisions that rule on specific subject matters, e.g., the commercial division (wydział gospodarczy) decides commercial disputes and the labour division (wydział pracy i ubezpieczeń społecznych) handles labour and employment disputes.

Generally, cases where the value in dispute is not more than PLN 75,000 (approximately EUR 18,000), are heard before District Courts in the first instance, and Regional Courts act as appellate courts. Major cases, i.e. cases where the value in dispute is more than PLN 75,000, are heard before Regional Courts in the first instance, and appeals are decided by Courts of Appeal. However, irrespective of the case value, District Courts always handle specified types of matters, e.g., claims for alimony, civil cases concerning disturbance of possession, updating the land and mortgage register to the actual legal state, as well as cases concerning electronic payment orders.

Currently, there are 321 District Courts, 45 Regional Courts and 11 Courts of Appeal in Poland.

At the top of the judicial hierarchy is the Polish Supreme Court. It functions primarily as a court of cassation. Grounds for cassation are limited to substantive law and major procedural issues. Generally, cassation is inadmissible in civil disputes concerning property rights in cases valued below PLN 50,000 (approximately EUR 12,000). In addition, irrespective of the case value, cassation is inadmissible in specified types of matters, e.g., cases concerning rent for lease or tenancy, disturbance of possession or civil cases heard in summary proceedings.

Civil proceedings are commenced by filing a statement of claim (in litigious proceedings) or a motion (in non-litigious proceedings) with the competent court. The statement of claim must contain allegations of the facts on which the claim is based and offer evidence in support of those facts. Under Polish law, the claimant must also precisely specify the request and, in matters concerning property rights, indicate the claim value, unless the subject matter of the case is a specified amount of money.

Depending on the type of legal protection sought, statements of claim are divided into three general categories:

-actions for performance of an obligation, e.g., to pay a specified sum of money, to deliver or surrender moveable property, to pay damages or to cease a particular behaviour;

-actions for determination of the existence or non-existence of a right or legal relationship; and

-actions for creating, amending or dissolving a legal relationship.

After the statement of claim is filed, the court considers whether it has jurisdiction over the claim and whether there are any grounds to reject the statement of claim (e.g. litis pendentio, res iudicata). If the court has jurisdiction over the dispute and there are no other procedural impediments, the court serves the statement of claim on the defendant. The defendant is entitled to submit a statement of defence before the first court hearing. The chairperson can request the defendant to submit a statement of defence within a specified period of time, no shorter than 2 (two) weeks.

Once the statement of claim is served on the defendant, the court initiates the trial proceedings which typically consist of several oral hearings. Generally, the trial is held and decided upon before a judge or a panel of judges depending on the type and stage of the proceedings. Only specific first instance cases concerning labour law and family matters are heard by a judge and two jurors.

Hearings serve the important purpose of allowing the presentation and gathering of evidence. In accordance with the adversarial principle, generally it is the duty of the parties (or their attorneys) to present the facts and evidence to the court. Under Polish law, the court is authorized to admit evidence not presented by the parties. It is, however, admissible only in exceptional cases, e.g., in order to guarantee the factual equality of the parties to the dispute, especially when one of the parties is not represented by professional counsel.

Evidence presented by either party during the proceedings may include, inter alia, documents, electronic materials, witnesses, expert witnesses (the court decides whether the expert's opinion is to be presented orally or in writing), inspections and testimony of the parties involved in the dispute. After the hearing and submission of evidence has been concluded, the judge closes the proceedings and issues a judgment.

In simple cases, a first instance judgment may be rendered within 6 (six) months. According to statistics provided by the Polish Ministry of Justice, first instance proceedings pending before District Courts take on average a little less than 5 (five) months; in Regional Courts, the average time is 8 (eight) months. In appellate proceedings, the court often relies on evidence gathered by the lower court. Appellate proceedings usually take between 4 (four) months and 1 (one) year. However, in complex cases, the duration of court proceedings can be considerably longer.

A party can request interim remedies. A court may order a preliminary injunction to secure claims either before or during litigation. In order to have a preliminary injunction granted, the party must make it plausible to the court that (a) the claim exists; and (b) the party has a legal interest in the granting of the injunction. Preliminary injunctions aimed at securing pecuniary claims may include, inter alia, attachment of movables, wages, freezing of bank accounts, attachment of other claims or property right and compulsory mortgages

The final judgment issued by the court includes an order specifying which party has to bear the costs of the proceedings. Litigation costs are mainly composed of court and attorney's fees, expenses for expert opinions and travel expenses for witnesses. Generally, costs of litigation are awarded against the losing party. However, if a party prevails only with a portion of his/her claim, the costs are divided on a pro-rata basis. In exceptional circumstances, the court may order the losing party to reimburse only a part of the costs of litigation to its opponent or not charge it with such costs at all.

In Poland, contingency fees that entitle an attorney to a certain percentage of the amount awarded to the claimant are not prohibited by law. However, under codes of ethic by the Bar Council and the Chamber of Legal Advisors, the contingency fee must be only a part of the remuneration for rendering legal services – the remuneration must not be based solely on a contingency fee.

In cases of business crimes, the perpetrator may often be subject to civil and criminal liability. For this reason, criminal proceedings are often conducted parallel to civil litigation. Taking part in criminal proceedings against a perpetrator may be an effective way of obtaining evidence and gaining an advantage over the opposing party. Evidence gathered in the course of criminal proceedings may also be submitted to the civil court, unless it contains classified information.

Judges presiding over business crime cases often lack relevant business experience and market knowledge. This is mainly caused by insufficient training programs and, most of all, by the fact that there is no specialization of judges, i.e. no special court divisions handling only economic offences. As a consequence, even for experienced attorneys it is often difficult to predict the final outcome of a case.

The Act on Liability of Collective Entities of 28 October 2002 allows a penalty to be imposed on a legal entity, if: (a) an officer or employee of the company has been convicted of a crime specified in the act (e.g. bribery, offences against trade) or the committing of such a crime has been determined in any proceedings; (b) the crime was committed in connection with the activities of the entity; (c) the offence was committed due to at least lack of due diligence in the choice or supervision of the person who committed the offence or due to the improper organization of the company; and (d) the crime was or could be beneficial (either economically or non-economically) to the entity.

The catalogue of penalties includes: (a) a fine up to the amount of PLN 5 million (approximately EUR 1,200,000), but no more than 3 % of the yearly income of the entity; (b) mandatory forfeiture; and (c) optional bans imposed for a period between 1 to 5 (one to five) years, e.g. prohibition on the use of public aid or subventions, prohibition on advertising and prohibition on participation in public tenders. As the procedure to hold a company liable is rather burdensome, the Act on Liability of Collective Entities is rarely applied in practice.

The two main stages of criminal proceedings are preliminary proceedings and court proceedings, which are commenced by submitting an indictment act to court.

Preliminary proceedings are obligatory in cases of offences prosecuted ex officio. The main purpose of preliminary proceedings is to gather and record evidence. These proceedings are divided into two stages, i.e., proceedings in rem, the purpose of which is to clarify whether an offence has been committed and proceedings in personam, conducted against a specific suspect. Preliminary proceedings can be conducted by the prosecutor, by the police (in minor cases), or other authorities (in specific cases). The organizational structure of the public prosecutor's office and the police, unlike that of the courts, provides for divisions specializing in economic offences.

If the preliminary proceedings are not discontinued and on the basis of evidence gathered the prosecutor is of the opinion that there are high chances that a crime was committed, the prosecutor prepares an indictment act and submits it to the competent court. Court proceedings in Poland are composed of two instances. Additionally, a cassation to the Supreme Court can be filed against a final and binding judgment rendered by the appellate court.

During the preliminary proceedings stage, the prosecutor and the police are the most relevant players. In the case of economic offences it is, however, also worth mentioning:

-the Polish Financial Supervision Authority (Komisja Nadzoru Finansowego), a public authority overseeing the capital market and banking sector;

-the Office of Competition and Consumer Protection (Urząd Ochrony Konkurencji i Konsumentów) whose main role is to safeguard compliance with competition law; and

-the Tax Audit Offices (Urzędy Kontroli Skarbowej) which are competent with respect to ensuring the payment of tax liabilities

The above-mentioned institutions are authorized to conduct investigations within the scope of their statutory competences and often discover facts that may lead to the initiation of preliminary proceedings. Moreover, pursuant to the Polish Code of Criminal Procedure, the Prosecutor General (Prokurator Generalny) and the Commissioner for Human Rights (Rzecznik Praw Obywatelskich) are authorized to file a cassation in criminal proceedings.

Under Polish regulations on criminal procedure, the aggrieved party is authorized to act as an auxiliary prosecutor along with or instead of the prosecutor (in case the prosecutor refuses to initiate or discontinues the preliminary proceedings).

The outcome of criminal proceedings can be of key importance for civil litigation for a couple of reasons. Firstly, a criminal court may order in its ruling that the convicted person must remedy the damage caused by committing the offence. As a result, a party awarded damages in a criminal case cannot claim them again in the civil proceedings. Secondly, the findings contained in a final condemnatory sentence of a criminal case are binding for the civil court as to the fact of the accused having committed the offence. In such cases, it is completely up to the civil court to estimate the damage incurred by the victim (claimant).

The approximate duration of preliminary proceedings in Poland is 18 (eighteen) months. Court proceedings last on average an additional 2 (two) years.

The notification of suspicion of a criminal offence having been committed is not subject to any fee. Only specific motions of the convicted party (e.g. motion for suspension of the sentence) are subject to fees. Moreover, the filing of a cassation is subject to a court fee, the amount of which depends on the type of court which rendered the judgment subject to cassation.

As indicated above, the scope of court fees in criminal proceedings is very limited. Therefore, the costs incurred by the parties are mostly composed of attorney fees, travel expenses, and other costs, e.g., remuneration of private experts.

Since 1 January 2016 Polish insolvency proceedings are regulated by two separate acts - the Restructuring Law of 15 May 2015 and the Bankruptcy Law of 28 February 2003.

The purpose of the restructuring proceedings is to agree on a voluntary debt restructuring arrangement with the creditors and to conduct remedial actions, while securing legitimate rights of creditors and ensuring the continued existence of the debtor. The Bankruptcy Law in general regulates the rules of vindication of claims against insolvent debtors, so it usually leads to the winding-up of the debtor's estate and the distribution of its assets among its creditors.

Restructuring Proceedings

Restructuring proceedings may be conducted against a debtor that is insolvent or threatened by insolvency. The definition of insolvency (niewypłacalność) is very wide, but generally a debtor is insolvent if he/she has lost the ability to fulfil their obligations.

The new Restructuring Law introduced four types of proceedings:

-arrangement approval proceedings (postępowanie o zatwierdzenie układu):

-accelerated arrangement proceedings (przyspieszone postępowanie układowe);

-arrangement proceedings (postępowanie układowe): and

-remedial proceedings (postępowanie sanacyjne).

Arrangement approval proceedings apply if debtors are able to reach an arrangement with the required majority of creditors without the court's involvement and the sum of disputed claims does not exceed 15% of the total claims. If debtors and creditors fail to reach an agreement on their own, the other types of proceedings apply. Standard arrangement proceedings apply if the sum of disputed claims exceeds 15% of the total claims. An accelerated arrangement proceedings, which is a simplified procedure (and should take approximately 2 (two) months), applies if disputed claims do not exceed 15% of the total claims,. The last type of restructuring proceedings are remedial proceedings, which are the most regulated and aimed at improving the economic situation of the debtor and restoring the debtor’s capability to discharge obligations, while ensuring protection against execution.

All types of restructuring proceedings as a rule are initiated when a motion is filed by the debtor. Generally, during the restructuring proceedings, the debtor remains in charge of managing his/her estate; however, he/she is supervised by a court supervisor (nadzorca sądowy) or, in case of arrangement approval proceedings, an arrangement supervisor (nadzorca układu). Furthermore, in some cases, the court may appoint an administrator (zarządca) to take charge of managing the debtor's estate. Appointing an administrator is mandatory in remedial proceedings.

A proposed arrangement is voted at a creditors' meeting (except in the case of arrangement approval proceedings, where the debtor collects votes in writing). As a rule, an arrangement is agreed upon, if it is accepted by the majority of voting creditors, who hold in aggregate at least two-thirds of the total sum of claims held by the voting creditors.

It is also possible to conclude a partial agreement, concerning only certain liabilities the restructuring of which have a fundamental impact on the continued functioning of the debtor's business. This applies in particular to debts stemming from investment credits and most important business agreements of the debtor, including those for the supply of raw materials for production, lease agreements, etc. An arrangement accepted by the required majority of creditors is subject to the approval of the court.

Bankruptcy proceedings

Bankruptcy proceedings may be conducted only against a debtor who is insolvent. According to the Bankruptcy Law, a debtor is presumed to be insolvent, if:

-it is late in paying its obligations for more than 3 (three) months;

-the value of its monetary obligations exceed the value of its assets.

Proceedings are initiated by a motion filed by the debtor or any of its personal creditors. If the conditions for declaring insolvency are fulfilled, the court issues a ruling containing a declaration of bankruptcy, calling upon the creditors to submit their claims within 30 (thirty) days of the announcement of the ruling. In the ruling, the court appoints a judge-commissioner (sędzia komisarz), who is in charge of the bankruptcy proceedings, as well as a deputy and a receiver (syndyk). The receiver takes over the management of the bankrupt's assets and conducts the liquidation of the bankruptcy estate (masa upadłości).

The receiver is obliged to prepare a list of the bankrupt's debts and a plan of distribution of the funds obtained from the liquidation of the bankruptcy estate, as well from the running of the bankrupt’s enterprise.

After the above funds are distributed among the creditors, the bankruptcy proceedings are closed

by the court.

Arbitration in Poland is governed by Part V of the Polish Civil Procedure Code (Kodeks postępowania cywilnego), as revised in 2005, which defines the limits of arbitration including the validity of arbitration agreements and the minimum standards that must be observed for a fair trial.

The oldest and largest Polish arbitration court in terms of number and value of cases is the Court of Arbitration at the Polish Chamber of Commerce in Warsaw (“SAKIG”). Other nationwide arbitral institutions in Poland include the Court of Conciliation (Arbitration) of the Polish Bank Association and the Court of Arbitration at Confederation Lewiatan (a nation-wide representation of employers to the state and trade unions founded in 1999).

Generally, any natural person, legal entity, or partnership fully capable of entering into a contract may conclude an arbitration agreement.

Under Polish law, pecuniary and non-pecuniary claims that are capable of being decided by courts of law may be subject to arbitration if the law allows the parties to enter into a settlement with regard to them, excluding claims for alimony. Disputes that would normally be decided by regulatory or supervisory authorities, claims relating to family law, personal status, bankruptcy, and disputes concerning entries in public registers may not be subject to arbitration.

An arbitration agreement may be concluded as a separate agreement or as a clause in a contract. An arbitration agreement must be executed in writing. Moreover, under Polish law, arbitration agreements must contain certain content. At a minimum, this must include: the names of the parties and a clear statement that the parties wish to submit a particular dispute to arbitration or any dispute arising out of a defined legal relationship. The arbitration agreement may contain provisions regarding the arbitral procedure or refer to the rules of a particular arbitral institution. Arbitration agreements to be entered into with consumers and employees have stricter requirements.

Any natural person of any citizenship, of full age and capacity may serve as an arbitrator. However, it should be noted that an active judge cannot be an arbitrator. The parties are free to agree on the number of members of an arbitral tribunal. If the parties fail to determine the number of arbitrators, the number of arbitrators shall be three.

The parties are free to agree on a procedure for the appointment of arbitrators. They can also make reference to a procedure setting forth the appointment of arbitrators and/or agree on a person/entity to serve as an appointing authority. Polish law stipulates a default procedure for the appointment of arbitrators where the parties have not agreed on such procedure.

Unless otherwise agreed by the parties, an arbitral tribunal may, at the request of a party, order such interim measures as the arbitral tribunal considers necessary with respect to the subject-matter of the dispute. The arbitral tribunal may require the requesting party to provide appropriate security. Interim measures are enforced by state courts and court enforcement officers. The state court may refuse enforcement on certain legal grounds. Any party may also apply to the state courts for interim measures before and during arbitration, irrespective of the fact that the dispute is subject to an arbitration agreement or an arbitration case is pending. This second way of applying for interim measures is generally faster; due to the fact that a party is not obliged to obtain a separate enforcement clause form the common court.

Under Polish law an arbitral award can be challenged on the following grounds:

-no valid arbitration agreement;

-violation of due process;

-decision outside the scope of the arbitration agreement;

-improper composition of the arbitral tribunal;

-proceedings not in accordance with the parties’ agreement or with provisions of law;

-the award was obtained by way of a crime or on the basis of a forged or falsified document;

-res iudicata;

-lack of objective or subjective arbitrability; and

-violation of Polish public order.

In addition, a consumer may challenge an arbitral award on the grounds that the award deprives him/her of rights granted to him/her by the provisions of binding law.

In principle, a challenge must be filed within 2 (two) months from the service of the award. The challenge should be lodged with the Court of Appeal. The award of the Court of Appeal cannot be challenged by further appeal, but a party has the right to lodge a cassation with the Polish Supreme Court. The parties may not waive their rights to challenge a future award. A challenge of an award neither suspends the legal force of the award nor its enforceability. It is, however, possible to stay the domestic enforcement on the basis of a challenge of the award.

The procedure for the enforcement in Poland of judgments issued in EU Member States is subject to a standardized and simplified procedure governed by Council Regulation (EC) No. 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. Under the above-mentioned regulation there are only limited grounds on which the recognition of such judgment can be denied. These include, inter alia, cases in which the recognition of a judgment is manifestly contrary to Polish public policy or the judgment was rendered in violation of due process.

As long as the judgements are enforceable in the country of origin, they are subject to automatic enforcement in Poland. As a result, there is no need to obtain a declaration of enforceability before Polish courts.

In order to enforce a judgement, it is merely necessary to present the court enforcement officer with a copy of the judgement to be enforced and a certificate issued in the country of origin confirming the enforceability of the judgement. A translation may also be necessary.

It is important to note that the above procedure is applicable only to judgements issued on or after 10 January 2015. With regard to judgements of EU Member States issued before that date, EU Regulation No. 44/2001 is applicable.

In addition, EU regulations No. 805/2004 (uncontested claims), No. 1896/2006 (European payment procedure) and No. 861/2007 (small claims) are applicable to claims specified therein. Such claims are also subject to automatic enforcement.

The enforcement of judgments from non-EU countries is contingent on the issuance of a declaration of enforceability by the competent Polish court. The enforcement proceedings are governed by the Polish Civil Procedure Code, unless an international convention binding Poland is applicable in a given case. The general requirement for the issuance of a declaration of enforceability is that the foreign judgment is enforceable in the country of its origin. Reciprocity is not required. The declaration of enforceability is denied on exhaustively listed grounds, inter alia, if the foreign judgment is not final and binding in the country of its origin, the jurisdiction of Polish courts was exclusive in the given case, the judgment is contrary to a prior Polish judgment or the judgment violates Polish public order.

A declaration of enforceability is issued by a competent District Court upon the request of the creditor. The debtor opposing the enforceability of the claim is allowed to present its position to the court. The court's decision on enforceability is subject to an appeal and cassation.

In regard to the enforcement of arbitral awards, Poland is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and to the 1961 European Convention on International Commercial Arbitration.

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6. ENFORCEMENT OF FOREIGN JUDGMENTS AND ARBITRAL AWARDS

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7. PRACTICE TIPS

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CONTACT

OFFICE

ul. Mokotowska 49

P-00-542 Warsaw

+48 22 378 8900

warszawa@wolftheiss.com

www.wolftheiss.com/offices/poland

Marcin Asłanowicz

Partner

Wolf Theiss Poland

+48 22 378 8900

marcin.aslanowicz@wolftheiss.com

Paweł Bukiel

Associate

Wolf Theiss Poland

+48 22 378 8900

pawel.bukiel@wolftheiss.com