For almost two years now, the Act on Promotion of Amicable Dispute Resolution has been in force in Poland. The main objective of the law was to increase the number of business cases submitted for mediation and to raise entrepreneurs’ awareness that mediation may be an alternative to court proceedings. Such a solution also makes it possible to end conflicts in a cheaper, quicker and less formal manner.
Official statistics published on the website mediation.gov.pl show a clear upward trend in the number of cases referred to mediation in courts at all levels.
This was due to various mechanisms introduced, among others, into the civil procedure, which motivate the parties to attempt mediation. Let us mention here, for example, the obligation of the parties to include in the first pleading letter information on attempts to settle the dispute amicably, or the judge’s examination of the mediation potential of the case at each stage of the proceedings and the encouragement of the parties to mediate.
Information meetings in courts also play a very important role, during which the parties, including entrepreneurs, can learn about the advantages of mediation and the benefits resulting from its use.
Strengths of mediation
What are the benefits of mediation for companies?
First of all, by using mediation to solve an existing economic dispute, we significantly shorten the time needed to resolve it (through mediation, a dispute can be resolved in a few weeks or more). It is also a much more formalized process, where the dynamics of mediation and the dates of mediation meetings are determined by the parties themselves and the mediator.
As statistics show, the time taken to conduct business in Poland is even a dozen or so months in the first instance. From the entrepreneur’s point of view, it is of course lost time, because the entrepreneur instead of engaging in his primary activity, puts a lot of effort and emotion into the court case. The process itself is also a lost business relationship with a contractor with whom the entrepreneur is fighting, frozen or destroyed joint ventures.
Secondly, costs. The costs of mediation are several times lower than those of litigation. Various calculations show that the cost of mediation is on average ten times lower for an entrepreneur than in the case of conducting a dispute in court.
When conducting a court dispute, an entrepreneur must not only take into account the court fee (as a rule, 5% of the value of the dispute), but also the costs of legal service of the process and possible additional legal costs, such as expert opinions or translation costs. Finally, one usually needs a bailiff to enforce the judgment, which is a further cost.
An entrepreneur may be represented in mediation, but due to the greater dynamics of mediation, the time taken to engage a potential attorney is also much shorter, and thus generates lower costs. Also, the costs of starting mediation in private mediation centres are rather symbolic in comparison with court fees.
Cost comparison: court proceedings vs. private mediation within the International Mediation Centre (www.mcm.org.pl)
The value of the object of the dispute: PLN 3,000,000
* Costs calculated on the basis of World Bank data published in the Doing Business Report (Poland) 2017
** Cost of mediation sessions at the International Mediation Centre (www.mcm.org.pl)
Further benefits of mediation are related to the economic incentives introduced. The aforementioned Act introduced, among others, the possibility to settle a correcting invoice and other correcting documents (relating to the dispute) in the scope of income adjustment and tax deductible costs (adjustment of the tax base in PIT and CIT) in the current settlement period in which the settlement agreement is concluded, which reduces the nuisance in relation to the previous obligation to make retroactive adjustments.
An extremely important advantage of mediation is its confidentiality. The mediation procedure is completely confidential, in contrast to the court process, where, as a rule, there is full disclosure and the possibility of third parties, e.g. the media, to listen to the hearings. Such openness of hearings may not only lead to the disclosure of business secrets, but also to the loss of the good name of the entrepreneur. Nobody needs to know about the fact that mediation is being held. In particular, private mediation guarantees an appropriate level of discretion even as to the very fact that a dispute has arisen between companies.
An important element of mediation, which makes it an extremely attractive tool, is the legal importance of a settlement agreement concluded with a mediator and approved by the court. An agreement concluded with a mediator may be approved by court, in which case it is an enforcement title and is fully enforceable also in enforcement proceedings.
Another important advantage of mediation is the possibility for the parties to continue their business relationship, which is usually impossible after many years of court proceedings. Since mediation is based on dialogue and the parties, entrepreneurs are directly involved in developing a solution to the dispute, often – in the presence of the mediator – the conflicting parties not only end the existing dispute but also arrange relationships between them for the future. Cooperation is therefore continued and common, difficult experiences remain a memory.
Mediation possible also with the public sector
Among relatively new legal solutions related to mediation are also amended provisions of the Public Finance Act, which in Article 54a regulates the issue of settlements made by units of the public finance sector. These provisions help resolve disputes arising at the interface between the public and private sectors.
According to these provisions, a public finance sector entity may conclude a settlement agreement on a disputed civil law liability if it is assessed that the effects of the agreement are more favourable for this entity or for the State Treasury or the budget of a local government unit respectively than the probable outcome of court or arbitration proceedings.
Therefore, these provisions directly indicate the need to assess the effects of possible court proceedings and, in the case of determining the benefits of conciliatory proceedings, e.g. mediation, provide officials with the appropriate tools to apply the mediation procedure. It seems that these are extremely important tools, which hopefully will be used more widely by entrepreneurs in disputes with public finance sector entities, which are usually characterised by very high value and high social importance of investments and projects against which a dispute has arisen.
How does mediation proceed?
Mediation can be carried out in two ways. The first, the most common one in Poland is a court referral. Such a referral takes place within the framework of proceedings, i.e. after filing a claim. At present – as I have indicated above – the court examines the possibilities of mediation at each stage of the proceedings, i.e. referral to it may also occur later.
When referring the parties to mediation, the court appoints a mediator from the list of mediators available to it. Therefore, the parties mediate outside the court and the mediator is obliged to prepare a protocol of mediation, which contains quite limited information, i.e. identification of the parties and information about the settlement itself, if any. If a settlement has not been reached, the dispute returns to the court and the proceedings continue.
Another route is the so-called private mediation, when the parties, the contractors remaining in the dispute report themselves to the chosen mediation centre and choose the mediator. Mediation takes place before the parties go to court.
Both types of mediation are connected by a very important procedural issue, namely that the agreement reached during mediation can be confirmed in court, thus the agreement takes effect and after the enforcement clause, which is only a formality, can be enforced by a bailiff.
The basic features of mediation are its voluntary nature, the autonomy of the parties, the neutrality and impartiality of the mediator, who is chosen, dismissed and instructed by the parties. All these elements, in the case of private mediation, are governed by a precisely signed agreement with the mediator, giving the parties a clear picture of the procedure and rules of mediation. It should be noted that the mediator does not have any powers of authority, i.e. does not formally settle the dispute and is intended to lead to an agreement between the parties.
A professional mediator is half of the success
A person who is appropriately qualified and professional business mediator increases the chance for a smooth and quick settlement. A mediator is often mistakenly compared to an arbitrator or judge. A significant difference between a mediator and a judge or arbitrator is that the mediator does not decide on the sides of the case or on the fate of the dispute.
In mediation, the parties make their own decisions. The mediator is an independent participant in negotiations between the parties and manages them in a very skilful manner, bringing the parties closer to a successful outcome in the form of a settlement. It is important that economic mediation is conducted by appropriately trained mediators, people familiar with the specifics of economic trade and the nuances of business activity. Only such people can understand entrepreneurs and help them solve the problem.
The mediator is bound by the principle of confidentiality and more importantly, the mediator cannot be questioned as a witness in civil proceedings unless both parties explicitly agree to this. If the mediation fails, the parties in any further civil proceedings will also not be able to invoke the circumstances revealed by mediation, and in particular the proposals for mutual concessions.
What does private mediation look like?
Private mediation proceedings can be described in the following way.
You should first report the matter to the mediation centre, preferably before it goes to court. If, however, the case is already in court and it is still the will of the parties to transfer the case to a neutral private mediation site, entrepreneurs can tell the coordinator at the mediation centre what stage the process is at. The mediation centre will help entrepreneurs to transfer the case from the courtroom to mediation.
If only one party declares its willingness to mediate, the task of the mediation centre is to inform the other party and carry out further procedures, e.g. assistance in choosing a mediator, contacting the other party and inviting them to mediate.
When both parties agree to the mediation, they have accepted the mediator – then the mediation procedure begins. The mediator ensures that the mediation takes place in a good atmosphere, taking into account the interests of all parties. He will propose the modalities of the procedure and conduct appropriate mediation sessions: joint or individual. He will then conduct the proceedings in the most time and cost effective manner, ensuring comfort of both parties to the dispute is met. The last step is to reach a settlement. The mediator will help the entrepreneur to approve the settlement in court so that it becomes a court judgment and an enforcement title. It is worth noting that entrepreneurs who agree to mediation by working out a joint settlement, usually – as practice shows – voluntarily implement it.
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