This article is co-authored by Patryk Kulig, Counsel and Mediator from the German Arbitration Institute (DIS).
With the entry into force of the latest amendment to the Polish Civil Procedure (KPC), the question arises: do the new rules of civil procedure contribute to the increased importance of alternative methods of conflict resolution? Similar solutions have been functioning for a long time in Germany, where ADR is the basic tool for resolving disputes in business.
New civil procedure and ADR
One of the key objectives of the amendment is to accelerate and streamline proceedings. In order to achieve this, the legislator introduced a number of institutional and organisational solutions concerning the procedure itself. The approach to the procedure and proceedings in disputed cases has been changed, according to which at the initial stage of the proceedings the parties should strive to reach an agreement, in which the judge and his new tasks related to the institution of the preparatory meeting are to play a very active role.
It is the legislator’s intention that the preparatory phase should, inter alia, create the conditions and tools to effectively seek alternative forms of legal dispute resolution. The preparatory proceedings introduced into the Code of Civil Procedure largely relate to the organisation and operation of arbitration courts. During the preparatory session, the proceedings will now be planned. It is assumed that the parties will actively participate in this phase, as it is at this stage that a party should present all requests and statements of fact and evidence which it would like to carry out in support of these statements. The knowledge of the parties’ demands and statements should contribute to a new perspective to the case and to any possible settlement discussions with the active participation of the judge. Also at this stage of the proceedings, the parties will create a plan for the hearing.
In the hearing plan, it is the parties, as co-hosters of the trial, who will jointly decide with the judge on the dates and order of evidence. A similar procedure is in force in the regulations of many arbitration institutions, when at the very start of the proceedings the parties together with the arbitrators make careful planning of subsequent actions.
Communication between the judge/arbitrator and the parties
The rules of civil procedure in force in the new version as of 7 November 2019 also provide for a reduction of the distance between judges and parties to proceedings through a formalised preparatory meeting. At this stage, the judge will be able to present his preliminary view to the parties and the parties could be ‘encouraged’ to make a reasonable compromise (Article 2056 § 2 of the Civil Procedure Code). This is a novelty in the civil procedure, as so far at no stage of the proceedings has the judge been able to present his or her views or the envisaged solution until the hearing is closed and the judgment is formally announced. Such a reduction of the distance between the judge and the parties to the proceedings is another point of contact between the civil procedure and alternative dispute resolution methods. Efficient, formalized communication is also a more effective procedure.
As the drafters emphasize in the justification for the changes introduced, the resolution of a dispute does not necessarily have to rely on a judge’s consideration and the ruling of the case. Before this happens, all possibile solutions to conclude the dispute should be exploited, including with the help of the judge, but at the will of the parties themselves, for example by coming to a settlement.
The activity of the judge at this stage of the proceedings will complement that of the mediators, who may also act in the subsequent stages of the proceedings. Initiating attempts to reconcile the parties will require the judges to have special conciliation skills and a certain change of perspective on the objective of settling the case.
Mediation and arbitration
Of course, the same goal – to settle the matter – can be achieved by the parties both in mediation and in arbitration. Both of these tools are often chosen methods to solve disputes in business. Often both of these methods also occur within a single case (the so-called “Med-Arb” or “Arb-Med” procedure) or within a single arbitration institution.
Practice will show whether a change in the civil procedure will increase the importance of alternative forms of conflict resolution methods in Poland. It is worth noting that methods such as mediation are also available outside the civil procedure. Mediation can also be used privately, without referring the case to court and regardless of the jurisdiction or legal regime to which the dispute is subject. It is important to bear in m mind that a settlement concluded before a mediator can be confirmed in a common court or an arbitration court, which gains the legal value of a court judgment.
Mediation in more complex cases can take from a couple to several weeks, which is an excellent result compared to many years of court proceedings. The costs of mediation are also much lower than in a traditional court trial.
As for arbitration, the parties have to make an agreement on a specific arbitration and the so-called arbitration clause is crucial for the facility to initiate this procedure. Arbitration, like mediation, gives the parties complete guarantee of confidentiality, which the parties cannot always count on in the case of a courtroom where the principle is openness of proceedings.
There are many arbitration institutions which offer their services in the framework of arbitration in specialised sectors or fields. There are also many institutions that handle disputes arising from international trade. Foreign investors are reluctant to submit their disputes to common courts. Contracts of multi-million monetary value and often huge investment projects are often submitted to international arbitration. Taking into account the fact that Germany is one of the largest and most important trade partners to Poland, economic disputes between Polish and German companies are on the agenda.
Solving these disputes on the traditional court route, even taking into account the amended provisions of civil procedure, may be protracted. This is not only related to organisational issues such as international service, but also to issues of a legal nature when, for example, the Polish court has to apply German substantive law or vice versa.
Private arbitration institutions which offer alternative legal dispute resolution proceedings may be a solution to such dilemmas.
Commercial arbitration and common courts in Germany
The amicable nature of commercial dispute resolution is deeply rooted in the German procedural culture – both in common courts and in arbitral tribunals established to resolve individual disputes.
The Polish legislature seems to directly draw on German solutions, in particular on the mandatory pre-trial negotiation procedure (Güteverhandlung), when the court, often in the presence of not only attorneys-in-fact but also of the parties themselves, discuss the dispute with them, taking into account all circumstances of the case known to the court and the parties at the time, actively ask questions and share a non-binding preliminary factual and legal assessment. On the basis of Article 278 of the German Civil Law Code, the court may further refer the parties to the so-called conciliation judge (Güterichter), who has no judicial capacity and whose role is limited to mediating between the parties, in a role comparable to that of a mediator and negotiator between the parties. He may also offer the parties an attempt to settle the dispute out of court, based on amicable methods such as mediation.
Arbitration and the general courts in Germany have one thing in common – a high percentage of commercial disputes are resolved amicably. As for arbitration, the most common amicable form of dispute resolution is for the parties to participate (and often, at least indirectly, also through an arbitral tribunal) in determining the content of a so-called arbitration award with agreed content; in the case of a court, the conclusion of “classic” court settlements.
The current Article 278 of the German Code of Civil Procedure, which refers directly to Article 279 of the Prussian General Code of Civil Procedure of 1794, obliges the court to take measures for the sake of procedural economy, thereby increasing the time and cost efficiency of the proceedings by considering at each stage of the proceedings, an amicable settlement of the dispute or individual litigation issues.
Statistics on all resolved civil and commercial disputes in 2018 in ordinary courts indicate, depending on the forum concerned, the conclusion of court settlements in between 16% and 40% of proceedings:
– Amtsgericht (equivalent of a district court) – 923,179 of all proceedings, of which 134,510 were concluded in the form of a court settlement, which accounts for 22% of all proceedings;
– Landgericht (equivalent of a district court) as a court of first instance: 303,993 of all proceedings; 80,544 court settlements; which accounts for 39% of all proceedings, in the second instance: 43 030 of the total number of proceedings; 5 471 court settlements; which accounts for 30% of the total number of proceedings;
– Oberlandesgericht (equivalent of a court of appeal) 49 164 of all proceedings; 7 841 court settlements; 16% of all proceedings.
In Germany, the trend is to conclude arbitration awards in the form of arbitral awards with agreed content. This means that the parties to the proceedings themselves agree on the content of the settlement and request in the arbitral tribunal that the content of the settlement becomes an arbitral award (with agreed content). The second possibility to conclude a settlement, which is characteristic of German arbitration, is the conclusion of a settlement as a result of the parties’ prior acquaintance with the preliminary assessment of the legal and factual situation, which may be shared by the arbitral tribunal with the consent of all parties. This form often involves the parties making a statement of no res judicata if the parties do not reach a settlement on the basis of the tribunal’s preliminary assessment.
In practice, the arbitral tribunal supports the settlement of the dispute in the arbitration proceedings, also in the subsequent stages of the proceedings by indicating the possibilities for conciliation, and the common court tries to point out settlement issues from the very beginning of the hearing in the framework of the mandatory negotiation procedure (Güteverhandlung).
The specificity of arbitration and one of the key reasons for its choice instead of the common court system by its very nature encourages users of arbitration – business entities and representatives of the broadly understood business – to be efficient in terms of time and cost, and thus to seek agreement and, as a result of the amicable settlement of the dispute, to further cooperation.
Another important practical aspect, which is an established part of the German tradition of dispute settlement, is the possibility to reduce court costs and the higher rates of attorneys at law in the case of settlement in proceedings in common courts, and often the reduction of administrative costs and arbitrators’ fees in the case of institutional arbitration.
Each commercial dispute is different and requires special instruments in order to achieve the most qualitative, time and cost effective resolution. Settlement is not always the best solution, just as arbitration is not always the best way to resolve a dispute. Awareness of the wide range of instruments for the choice of commercial dispute resolution is crucial, and in the case of complex disputes, both in fact and in law, particularly in cross-border disputes, amicable settlement methods based on settlement can often be a way of resolving the dispute quickly and engaging in further business cooperation.
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