The return of the separate procedure in commercial cases | In Principle

Along with the recent amendment of the Civil Procedure Code, the separate procedure in commercial cases has returned. This will undoubtedly be a major change for businesses and their counsel.

Introduction

The new regulations apply exclusively to cases commenced on or after 7 November 2019. They do not affect proceedings commenced before that date. The date when the statement of claim is filed with the court should be regarded as the date when the proceeding is commenced.

The aim of the reform is clear: to speed up proceedings. The proponents left no doubt on this score in the justification for the bill. The same conclusion can also be drawn from an analysis of the newly introduced institutions. The goal is laudable. Attempts to achieve it were made in the past, but typically boiled down to unreasonably rigorous formalism in the procedure, which often ended up injuring the parties. An example was the rules for separate procedure in commercial cases in force from 1 October 1989 through 3 May 2012.

In the justification for the bill, the proponents stated that their aim is not to restore the same state of affairs that existed at that time, which is not possible due to the changes in law occurring since 2012. In the new regulations on commercial cases, some institutions have been restored, others modified, and new solutions have also been adopted. It will take several years of practice before the effect of the changes can be assessed. For now, feelings are mixed.

The changes are so rigorous that a business will not be in a position to pursue a case in court without the assistance of professional counsel. If they do decide to go it alone, they may fall into any of the many traps posed by the amendment. To expedite the consideration of commercial cases, the lawmakers have excluded the possibility of applying mechanisms that may be time-consuming but can eliminate errors committed at the stage of commencement of the case, often not at the parties’ fault.

Who is affected by the new regulations?

The amendment changes the definition of a commercial case, establishing a new range of entities affected by the new regulations. Under Art. 458² §1 of the Civil Procedure Code, the following types of cases will be considered in the separate procedure for commercial cases:

• Cases between business entities within the scope of their business, even if any of them has ceased doing business
• Cases arising out of corporate relationships or involving claims referred to in Art. 291–300 or 479–490 of the Commercial Companies Code (this has to do with claims concerning the liability of members of a company’s authorities, injury in creation of a company, injury in examining the financial report of a joint-stock company, and shareholder derivative suits (actio pro socio))
• Cases against businesses to cease environmental violations and restore the previous state, or to redress related loss, and to cease or limit activity threatening the environment
• Cases arising out of construction contracts or contracts related to the construction process, furthering the execution of construction works
• Cases arising under financial leasing agreements
• Cases against persons responsible for the debts of an enterprise, including secondarily or jointly and severally, by law or pursuant to a legal act
• Cases between the authorities of a state enterprise
• Cases between a state enterprise or its authorities and its founding authority or supervisory authority
• Cases involving bankruptcy and restructuring law
• Cases seeking issuance of an enforcement clause to a writ of execution which is a ruling of a commercial court that is legally final or subject to immediate enforcement, or a settlement concluded before the commercial court
• Cases to defeat the enforceability of a writ of enforcement based on a ruling of the commercial court that is legally final or subject to immediate enforcement, or a settlement concluded before the commercial court.

Cases seeking the division of the joint property of the partners in an ordinary partnership (s.c.) after it is wound up, as well as cases concerning receivables acquired from a person who is not a business entity, unless the claim arose out of a legal relationship involving economic activity pursued by all parties to the legal relationship, are expressly excluded from the scope of commercial cases (Art. 458² §2).

Example 1:

A collection company has acquired a receivable from a telecommunications operator. The case will be regarded as commercial if the debtor is a business entity. If the debtor is not a business entity, the proceeding will be conducted under the general rules.

An application to hear the case avoiding the separate regulations for commercial cases can be filed by parties who are not business entities or who operate as sole traders. If such an application is filed at the start of the case, the court will conduct the proceeding under the general rules (Art. 458⁶). Considering the severe rigours posed for business entities, this appears to be a fair solution. It also leaves it up to such persons to elect the procedure that will be the most advantageous to them under the specific circumstances.

It should also be pointed out that the amendment provides that the regulations on separate commercial procedure take precedence over other regulations governing separate procedures, except for commercial cases considered in the European order for payment procedure, the European small claims procedure, or electronic summary procedure (Art. 458¹(2)).

Expediting proceedings

The amendment entirely excludes the possibility of modifying the parties to the proceeding (by adding new persons on the plaintiff’s or defendant’s side) or the subject matter (by expanding or modifying the demand in the statement of claim).

From 7 November 2019 it is not permissible to change the subject matter of the action by asserting new claims in place of or alongside the existing claims. Only in the event of a change of circumstances may the plaintiff demand an equivalent or other object in place of the original subject matter of the dispute, or in cases of repetitive consideration, expand the action to include consideration for further periods.

Example 2:

The plaintiff demands the return of a bicycle he has lent to the defendant, but after filing the claim the bicycle is destroyed. In that case, the plaintiff can modify the claim and demand money damages instead of return of the physical object. But if the bicycle was destroyed before filing suit, and the plaintiff was aware of this, amending the claim will be barred and the claim will be denied.

Example 3:

The plaintiff demands payment for services rendered. The plaintiff can expand the demand in the proceeding to include fees arising on the same basis after the claim was filed. But if when filing the claim the plaintiff overlooked part of the fee that was already due, he will not be permitted to include that demand in the pending proceeding, but will have to commence a new case.

Changes in the parties to a claim as referred to in Art. 194–196 and 198 of the code are also excluded, i.e. a summons to participate in the case as a defendant, a summons to join the case as a necessary co-party, or a summons to an interested party to appear in the case as a plaintiff. Thus if it turns out that the set of plaintiffs or defendants is incomplete, the claim will be denied. Principal or auxiliary intervention, as well as impleading, will continue to be permissible. However, the defendant will no longer be permitted to file a counterclaim. Moreover, the district court cannot transfer the case to the regional court pursuant to Art. 205 of the code. Nor is it possible to suspend the proceeding due to the parties’ failure to appear (Art. 458⁸).

In examining these rules, it may be concluded that although they will undoubtedly shorten the duration of individual cases, they will probably also generate a much greater number of cases. In these additional proceedings, it will often be necessary to admit evidence that was already examined by the court in another case. This may improve the statistics for case resolution time, but overall the judicial system will have to do more work to satisfy the same legitimate interests.

Proceedings are also to be expedited by introduction of an additional formal requirement, namely the duty to provide the party’s email address in the first pleading, or a statement that the party does not have an email address (Art. 458³). This rule is tied to the new Art. 132 §1³ of the code, which permits pleadings to be served between professional attorneys exclusively by electronic means, if they consent.

Evidence under the new rules

The amendment introduces major changes in the admission and consideration of evidence.

Lawmakers have placed greater emphasis on time limitations for presenting allegations and evidence. The parties to commercial cases must formulate all factual allegations and present the supporting evidence in their initial pleadings: the plaintiff in the statement of claim and the defendant in the response to the statement of claim (Art. 458⁵ §1).

In its first pleading, a party is also required to make a statement that it has asserted all its allegations and evidence. If the first pleading does not contain such a statement, the court will summon the party to assert all allegations and evidence under the sanction of loss of the right to assert them later in the case. Such a pleading will have to be filed within one week from the summons.

Late allegations and evidence will be ignored unless the party demonstrates that timely assertion of the allegations or evidence was not possible or the need to assert it arose later. In such case, further allegations and supporting evidence must be raised within two weeks after the date when it became possible to assert them or the need to assert them arose.

This is a major change from the prior regulations. Under the former Art. 207 §6 of the code, repealed by the amendment, the court would consider late allegations and evidence if their assertion would not delay consideration of the case. This was often exploited by counsel as a loophole, which now will be closed.

The amendment also introduces the principle of the primary of documentary evidence (Art. 458¹⁰). Under this rule, witness testimony can be admitted only if after exhausting other forms of evidence, or in the absence of such evidence, there are unexplained factual issues remaining that are relevant to deciding the case.

This means that at the stage of drawing up the hearing plan referred to in Art. 205⁹ of the code, the court will have to decide to what extent the documentary evidence provides a complete and clear picture of the facts. In practice, it may prove crucial in specific cases to see how the courts interpret the notion of “remaining unexplained factual issues.” For now it is hard to guess how much doubt the court will have to have with respect to the reliability and completeness of the documents before it will admit witness testimony—whether this will be possible even for minor doubts, or the doubts will have to be significant. It may be expected that within the next few years this issue will be the subject of a ruling or resolution of the Supreme Court of Poland.

It can also be expected that the bar will be set high in this respect, primarily in light of Art. 458¹¹ of the Civil Procedure Code. That article provides that an action of a party, particularly a declaration of will or knowledge, which the law connects with the acquisition, loss or change in the rights of the party (and thus all relevant circumstances) may be proved only by a document referred to in Art. 77³ of the Civil Code, i.e. a carrier of information enabling an examination of its contents. This means that in practice, the weight of witness testimony in most instances will be only supplemental to documentary evidence. Witness testimony could thus establish the context for documentary evidence but would not serve as proof of specific actions.

The rationale for introducing these provisions is that business entities should be held to a higher standard of diligence. They should maintain control over the documentation connected with their commercial activities. It is likely, however, that before businesses grow accustomed to this standard, many unjust decisions will be handed down by the courts.

Another new solution for commercial proceedings is the possibility of concluding an evidentiary agreement (Art. 458⁹). As this is a new institution for Polish law, for now it has been limited to the parties’ exclusion of certain types of evidence. If the parties reach such an agreement, the court will on its own initiative exclude such evidence. However, an evidentiary agreement does not deprive the force of evidence admitted by the court before the agreement was concluded.

This new institution is intended to encourage the principle that the parties are the masters of a commercial dispute. But the proponents admit the risk of complicating the procedure. Moreover, if the parties exclude evidence that would demonstrate certain factual issues, the court will have to determine in some other way what happened. In that case the court would judge the parties’ allegations based on the overall circumstances of the case. With respect to the measure of a monetary award, the court could draw upon Art. 322 of the code, awarding a certain sum based on the court’s own assessment of the case.

It may be anticipated that in practice evidentiary agreements will be used fairly rarely. We may imagine that they could function in certain contracts in the form of a merger clause, as in common-law jurisdictions, stating that the contract supersedes any earlier agreements between the parties. In that case, the parties might conclude an evidentiary agreement excluding evidence from documents predating the contract, or witness testimony on facts preceding conclusion of the contracts. This would be a risky approach, however, because in the absence of evidence the court will have to rely on assumptions.

New time periods

The amendment shortens a range of time periods binding on the court.

If the commercial court finds that a case before it is not a commercial case, or conversely if the civil division finds that a case before it is a commercial case, the deadline for transferring the case to the proper court will be one month after the defendant joins issue on the merits of the case (new Art. 458⁷ §1). But an otherwise commercial case that is not forwarded to the commercial court before that deadline will be considered without following the commercial procedure (Art. 458⁷ §2). This solution is justified by the need to limit multiple transfers of cases between courts or divisions, as well as transferring cases with undue delay.

Another limitation for the court is the obligation to act in the case so that a resolution is reached no later than 6 months after filing of the response to the statement of claim (or the deadline for filing a response, if no response is filed).

Although the 6-month period indicated in the code is only instructive, it does stress the priority of speed in commercial proceedings by obliging the court to take actions enabling the case to be heard within the period stated in the law. It is stated in the justification for the amending act that under the current reality of the functioning of the commercial courts, until the existing backlog is cleared it would be an obvious fiction to set a rigid deadline for reaching a judgment in new cases.

Nonetheless, once the courts do make up for the existing backlog, meeting the 6-month target will be possible if the scope of witness testimony is radically reduced.

Judgments

Changes have also been introduced at the final phase of the proceeding.

The commercial courts have been vested with a wide range of possibilities for ruling on costs. Regardless of the result in the case, the court will be empowered to assess trial costs against a party which failed to attempt to resolve the dispute out of court prior to filing of the suit. The same sanction can be applied to a party refusing to participate in such attempts, or participating in bad faith, thus causing unnecessary filing of the suit or erroneous determination of the amount in dispute (Art. 458¹²).

Moreover, a judgment issued at the first instance in a commercial case in which money or fungible goods are awarded is deemed to be a writ of security. Previously this treatment applied only to an order for payment issued in an order for payment procedure. This means that as soon as the judgment is issued at the first instance, the prevailing party will be entitled to apply to the bailiff to establish security against the losing party’s assets up to the amount awarded. The security may consist for example of freezing a certain sum in a bank account or establishing a mortgage on designated property, and it will last until the legally final conclusion of the case, when execution may be commenced (Art. 458¹³).

Both of these changes should be regarded favourably. The first increases the chance for amicable resolution of disputes before suit is filed. The second should result in more effective satisfaction of claims covered by a judgment of the court of first instance, and discourage filing of appeals solely to prolong the case.

Piotr Golędzinowski, attorney-at-law, Dispute Resolution & Arbitration practice, Wardyński & Partners

Aleksandra Połatyńska, Dispute Resolution & Arbitration practice, Wardyński & Partners