On 3 September 2021, the Ministry of Justice of Poland proposed an amendment to the Code of Civil Procedure (“the Draft”), with its main goal being “expediting proceedings (…) and filling in gaps in the existing law”.
Legal and factual background
As stated in the Assessment of Legal Impact attached to the Draft, in 2014 – 2018 there was a significant increase in the number of civil cases filed before the common courts, which impacted the court’s workload, leading to an increase of the average length of court proceedings. To counter the increasing clogging-up of the judicial system in Poland, the Ministry of Justice proposed another pro-arbitration provision, which could lead to a rise in the popularity of arbitration – the word “could” being key here.
The proposed Article 1161(1) of the Code of Civil Procedure introduces the possibility of the “conversion” of a litigation into an arbitration, between the initiation and the ruling of court proceedings: “In a case pending before a court, the parties may submit the dispute to arbitration at any time before the case is finally decided by the court”.
This solution would give the parties the power to refer the dispute to arbitration “at any time before the case is finally decided by the court”. It means that the parties would have the option to do so after the court proceedings have started and even after all the evidence in the matter is gathered. Without the proposed change, the parties would be able to “choose” arbitration without cost implications only before the commencement of the court proceedings. Otherwise, they would have to terminate the court proceedings (bearing some of the costs) in order to agree to arbitrate their dispute.
It is unclear whether the “conversion” would have any influence on the pending status of the case. As there is no indication otherwise, it is likely that the filing of a lawsuit, even if the litigation is later converted into arbitration, will trigger a pending status and will stop the limitation period from running from the day the litigation is initiated.
The proposed Article 1161(1) § 2 of the Code of Civil Procedure states that if the parties conclude an arbitration agreement, the court will discontinue the proceeding at their joint request, unless it would be “contrary to the law, rules of social co-existence or aimed at circumventing the law, or the arbitration clause is invalid or ineffective”.
Moreover, under the proposed Article 1165 § 1(1) of the Code of Civil Procedure “[t]he court shall of its own motion dismiss the lawsuit or the petition for the initiation of non-contentious proceedings if it concerns a dispute which was the subject of a case discontinued pursuant to Article 1161(1) § 2 (“conversion”)”. This means that the court will be obliged to dismiss any lawsuit or petition brought up before it ex officio, if the dispute was subject to conversion. The consequence of that will be similar to the lis pendens effect (Article 199 § 1 point 2 Code of Civil Procedure).
Knowing the importance of the costs in dispute resolution, the Polish legislator proposed Article 79 § 1(4) of the Court Fees in Civil Cases Act, according to which the court would refund 1/4 of the filing fee when the parties “convert” their dispute to arbitration according to Article 1161(1) of the Code of Civil Procedure. During the public consultation process it was pointed out that the amount refunded should be higher than 1/4 of the filing fee, particularly because 1/4 is a significantly lower return than if the parties consensually requested to refer the case to mediation, where the return amounts to 3/4 of the application fee. Similarly, if the claimant withdrew their claim from the court, the return could amount to 100% of the application fee, but this is also dependent on the stage of the proceedings at the time of withdrawal.
The 1/4 return indeed seems rather skimpy, and it is unlikely to have any effect on the parties’ decision to use this instrument. This is especially the case when the claim at stake is not statute barred, as it is possible to simply withdraw the claim from the court, conclude an arbitration agreement and benefit from a higher return, without any extra favors from the court. Since arbitration in Poland is most often used in high value disputes and the maximum court fee applies, the return of EUR 10,500 (approx.) at the loss of the remaining EUR 31,500 (approx.) simply might not be a big prize for the claimant.
Although any changes aimed at “relieving” the judicial system and promoting ADR’s and arbitration should be seen as a positive, the question is whether the proposed changes will have any visible influence.
The option for the parties to refer the dispute to arbitration during ongoing court proceedings is an interesting prospect, but it has to be remembered that the parties could have decided to conclude an arbitration agreement (i) before the dispute arose, or (ii) before they commenced court proceedings, yet they chose not to. It seems like the proposed changes are aimed at parties which (i) did not consider the possibility of arbitration before commencing litigation, (ii) are engaged in a long court “battle”, but have no ability or will to resolve the dispute in an amicable way, through negotiation or mediation, but are willing to let an arbitrator decide in order to secure a faster outcome. The number of parties that could fit these descriptions remains to be seen.
Clarification from the legislator on the pending status in case of conversion would be very welcome.
It has to be pointed out that it is yet another pro-arbitration change in Polish arbitration law in recent years, with the biggest being the 2019 Code of Civil Procedure Amendment. It seems like arbitration (and for that matter mediation as well) could be seen by the Polish legislator as a valid option to help ease the influx of court cases, which has increased in the past years. The consequence for the parties is a more arbitration friendly legal environment they take advantage of.