Poland: Contract Enforcement

1. Poland: Contract Enforcement World Bank Luba Beardsley National Bank of Poland Jaroslaw Beldowski

2. Why? Very long time to enforce a simple contract

3. Why? Courts are viewed as slow

4. Why? Courts are viewed as weak

5. Public support In accordance with the Public Opinion Polls on courts conducted from 1998 up to the present time negative opinions about courts are quite stable – 60% (50% in 1998) as well as positive ones – 20% (30% in 1998).

6. Inflow of cases per 100 000 inhabitants in 1994 - 2003

7. Inflow of cases by jurisdiction in 1994 - 2004

8. Cases concluded and backlog 1999 – 2004

9. Judicial sector expenditure in Poland, 2002-2004 Source: Ministry of Finance PLN: Polish zloty; USD: American dollar

10. Size of judicialsector in Poland and some European countries

11. Court organisation in Poland Three-tier court system: 310 district courts (sad rejonowy) 43 regional courts (sad okregowy) 11 appellate courts (sad apelacyjny) The courts are divided into several divisions, e.g. 120 district commercial courts, 300 land registration courts, 21 business register courts and 10 pledge register courts.

12. Criminal, civil, commercial, registrations cases by courtsin 2003

13. Commercial procedures at the commercial courts Three basic types of commercial procedures (disputed claims): trial (regular), simplified. Accelerated proceedings (undisputed claims): admonition orders (up to around 3000 USD), payment orders. Registrations (seperate procedures).

14. Inflow of cases by procedures indistrict (commercial)courts, 1999–2004

15. Processing time in district courts (commercial cases)1999 – 2004, in months

16. Other factors affecting contractual enforcement in Poland Blaming only courts for the poor contract enforcement in Poland is not fair as there are also other players which are involved in the process. One should not forget about business itself (behavioural patterns shaped by some regulations, e.g. access to information, tax incentives) and legal professions (notaries, advocates/legal councels and bailiffs). It is why the World Bank report has not been limited to the courts, but it has also covered some other issues.

17. How?

18. Products In cooperation with the National Bank of Poland: • The World Bank Report: Legal Barriers to Contract Enforcement • The EBRD Report: The Impact of the Legal Framework on the Secured Credit Market

19. Legal Barriers to Contract Enforcement • Contracts • Information • Accessibility • Balance between personal data protection & information flow • Legal Services • Demand (during contract negotiation & conclusion, when the contract is not honored and impact on voluntarily compliance) • Supply (accessibility, costs & quality of service) • Debt Collecting Industry • Disputes • Commercial Courts • Actual performance • Factors contributing to under-performance • Alternative Dispute Resolution • Constraints to utilization • Enforcement of Judgments • Bailiffs • Performance • Factors contributing to under-performance

20. Key Findings • Informed Contracting • Breach of Contract • Legal Services • Courts • Bailiffs

21. Informed Contracting • Limited Access to Information • Reliance on negatives • Mandatory notification of debtor • Focus on individual consumers • Personal Data are Protected at the Expense of Information Flow and Well Functioning Credit System

22. Breach of Contract • Failure to pay, substandard goods/service and third party claims, trigger legal actions • At the same time business take other actions • Renegotiating contract • Seeking other financing

23. Legal Services • Lawyers are seen as the “fire brigade” to be called out only if things go wrong • Use of lawyers does not increase compliance with the contract • concerns about reputation and relations • Lawyers meet the demand but the cost of services is an issue

24. Courts • Demand for court services is among the highest in the region • Businesses file lawsuits • to buy time • for tax purposes • as a matter of principle ( to uphold ethics) • Public expenditures and production in the justice sector are very high but do not translate into court performance • Misplaced functions and weak barriers to access • Cheap labor drives productivity • Inconsistent court performance blurs the picture • Inflexible organization and obsolete management are behind the court problems • Absence of performance management • Weak central management • Lack of investments into technology and innovation • Obsolete business organization and processes • Overly formalistic procedural designs

25. Enforcement Agents • Sub-optimal Combination of Public Service Aspects & Market Elements • Significant Entrance Barriers • Secured position and inflow of cases • Private- business organization • Price regulation • Deficient Supervision • Minimal Competition • Price as a factor : fixed fee with little possibility of deviation paid by third party • Quality is not a factor: little information on performance and geographical monopoly of bailiffs • High number of low-value or uncollectible debt and opaque incentives of bailiffs to act • External constrains • Information, easy transfer of assets

26. Future Steps • Currently the report is being discussed with the local experts and stakeholders • After the consultations, the report will be released in June 2006