It is not all right. The matters described above do not exceed in their complexity the subjects covered in the early years of high school, at least from the times preceding the glorious revolution of the educational system in this country. Neither do I accept as a valid excuse the premise that law is a humanistic discipline. It is not. At least not in dispute resolution. Proper representation of clients and proper resolution of civil, criminal or administrative cases are simply impossible without a fair understanding of the essence of the factual issues in dispute. And these cannot, in turn, be understood without even an attempt to dive into the issues of finance, civil engineering, biology or physics, and return to the surface with case-relevant conclusions. Yet there are examples of lawyers who cannot tell the difference between 400 thousand and 4 million. Regrettably so. I can also remember a court decision which found that there was no risk of futile future enforcement of claims against a manufacturing company that had been running at an operational loss, and shortly before the application was made to the court, it assigned all its production assets to a third party. The court held, based on the annual report for the previous year that the company was planning to produce an increased profit in the forthcoming years, by increasing production. I can also remember a case in which a professional counsel purported to convince the court, that in fractions, when the numerator and the denominator are increased by the same number, the fraction does not change.

The non-lawyers issues can be addressed by lawyers in two general ways. The first path was shown to me by a judge, who in response to a party’s oral pleading concerning defective equipment, retorted: “The court does not understand this, and does not want to.” It stayed in my memory. The second, equally memorable approach I learned in the course of an arbitral hearing in London was when one of the parties purported to explain why it requested production of specific technical documents, typical for a peculiar branch of business. The counsel asked the Tribunal for this issue to be addressed by an expert sitting next to him. The Chairperson, one of the leading arbitrators, just raised his eyebrows and said: “well, if the lawyers cannot explain… please…”

I somehow tend to be guided by the latter approach. I find it the only appropriate one, even when it requires us to work even harder and go beyond our own mental capabilities. If not, and should the financing of R&D in Poland be kept at the current level – most ground-breaking scientific theories in this country, sometimes worthy of the Noble prize, will be found in the counsel pleadings and court decisions.

The concept was first developed in the 1980s by the International Institute for Conflict Prevention & Resolution (CPR) with its Corporate Policy Statement on Alternatives to Litigation. The “CPR Pledge” was signed by more than 4,000 operating companies and 1,500 law firms which committed to consider ADR before filing suit. Now CPR promotes its 21st Century Corporate ADR Pledge.

Other well known examples include:

- the Dispute Resolution Commitment in the UK,

- La Charte de la médiation inter-entreprises in France,

- the Singapore Mediation Charter,

- the INTA’s ADR Pledge for Brand Owners.

The most recent initiative in Poland has been commenced by the Civic ADR Council and endorsed by the Ministry of Justice. Time will tell how this new initiative will be perceived by business and legal communities in Poland. Skeptics should keep in mind how the corporate governance and corporate social responsibility standards and policies appeared and evolved. It took some time, but today they are regarded as a part and parcel of business practice, which cannot be underestimated.

I have no doubt that the public declaration: “I know and I use” can significantly contribute to the social promotion of mediation and ADR. The lack of binding legal effects is not its fault but a virtue. It does not mean that the words are wasted. I have an impression that in Poland, the regulatory role of “good practices”, and even ethical codes or other extra-legal norms, has not been appreciated until recently, whilst they are an important regulation of the social life, in particular business. Particularly in this sphere, legal and extra-legal norms – previously known as good merchandise customs, and more contemporarily as “business ethics” – blend together. Business needs – in addition to the established laws and strict regulations (black-letter law) – other norms, arising from the practice of business transactions, such as lex mercatoria or soft law.

I am pleased with both Polish declarations (for businesses and lawyers), and I cross my fingers for them. I only have an unsatisfied feeling regarding lack of a similar declaration for public entities – stationes fisci of the State Treasury or other state legal persons. The British public obligation of the Lord Chancellor (Dispute Resolution Commitment) is the best example here. I hope that the time will come when the Prime Minister or Minister of Justice will publicly declare that Poland systematically uses and encourages the use of mediation and ADR. A more realistic wish would probably be inclusion of the declaration into, for example, the Good Practices Database  of the territorial self-governmental units. This joint venture of the Union of Polish Cities (Związek Polskich Miast), the Union of Polish Village Districts (Związek Gmin Wiejskich RP) and the Union of Polish Provinces (Związek Powiatów Polskich) collect descriptions of proper and verified solutions for improvement of the management public services and development of territorial self-government units, as well as cooperation between self governments (totaling more than 380 standardized descriptions of practices complaint with the adopted methodology). Time for ADR? In this context, one can say that a good example is set simultaneously from the top and from the bottom.

            Mr. Domagalski presents an image of the courts, where judges are the “mouthpieces of the statute” and they have no power, “they give judgments which are almost obvious” and the making of decisions is compared to adding two and two together.  If such views were expressed by someone who does not have much in common with the judicial system, then one should shrug one’s shoulders. These views, however, are expressed by an experienced newspaper columnist, in whose newspaper daily problems and problematic rulings are covered in a considerable number of pages.

            So let’s start from the beginning. Courts under the Constitution occupy an important position in the political system.  Unfortunately, the Constitution (art. 10 and 173) does not share the views of Mr. Domagalski that judges “have no power”.  The courts are an authority separate and independent of other authorities. In accordance with the principle of separation of powers of Montesquieu, judges are the third authority, equivalent to the parliament and the government, necessary for a stable and effective functioning of the political system. It is, however, a power that differs significantly from the two previous ones. This power is not appointed by way of elections.  The judge’s existence, his career and his earnings do not depend on the results of the next elections. The judge does not have to seek applause. He does not have to outshine another judge in a TV interview.  He is not a politician. For the political system, this is crucial and has a therapeutic influence. This, of course, comes with other risks, such as a type of caste system and being out of touch, but on the whole, in a country where politicians occupy 80% of our public life (the rest is made up of actors, dancers, models and musicians), it is a value to appreciate.

            To illustrate the effects of this third power on people’s lives, have a look at the Constitutional Court’s ruling on health insurance for farmers. It is an obvious injustice when for a wealthy farmer’s health insurance, all taxpayers, including the poorest, have to pay. This matter was not solvable by politicians. There is no political force that is able and willing to tackle some basic and obvious issues, because the price paid in the next election will be too high for it. The number of such “sacred cows” in the country is alarmingly high. In this case, we rely only on those individuals who do not need to seek the applause of the people. We need to cultivate and protect this role of the courts.

            On the contrary, Mr. Domagalski presented the concept of reductionism. Judges are only “mouthpieces of the statute”, adjudicating on the basis of what is on the judge’s table.  These views are unfortunately not isolated, even among the judges themselves. Taken probably from the nineteenth-century concept of legal positivism, in which the law is a sovereign order and the concept of legal norms of Hans Kelsen flow from one to the other. The task of the courts in these concepts is simply to decipher these norms. So applying the law is merely solving a logical-linguistic riddle.  Unfortunately, this approach is too frequently found in the Polish courts.  Today’s world is very far removed from such an understanding of the law. The Constitution states in plain language that the courts administer “justice”.  The element of “justice” is obviously undervalued by these very judges. The concept, in which the task of the courts is limited only to the interpretation of the language of the Act, is defeated when confronted with the practice. Perhaps the most glaring example is the protection of personal rights for which just a few words are marked in the Civil Code and the law is shaped by jurisprudence. Without knowledge of the judicial decisions, one does not have a clue about the content of the law. This phenomenon is widespread to varying degrees. The same applies to constitutional law. The second article of the Constitution contains the statement that Poland is a “democratic State of law”, virtually does not carry any normative content without the Tribunal’s jurisprudence.  In this situation, claiming that the judge is the “mouthpiece of the statute” clashes with the reality.

            Such a clash does not stand up to the thesis presented by Mr. Domagalski, and perhaps the editor is only wishing that judge “issues judgments which are almost obvious.”  There are definitely matters in which the judgment is obvious. The district court probably has many such cases.  However, the higher courts are already dominated by cases in which there is no clear solution. An efficient and technically competent judge is usually able to write a well-justified verdict that is favorable to the plaintiff, as well as a favorable verdict for the defendant. Today’s research provides some amazing facts regarding the real behavior of judges. For example, Kahneman’s research showed that a judge, after a lunch break and some rest, grants considerably more decisions on probation than a few hours later, when he is tired and hungry. Such observation of the actual behavior of the judges are far from the role of “mouthpiece of the statute”. The issue of what really guides the judge’s decision making, is not easy to resolve.  However, we may assume that he follows the letter of the law, but also the value system contained in the legal system, as well as his own.

            And here we return to Beata Sawicka’s case. The judges hearing the case have a choice far more important than that which applies to the next few years of the person in question. They were confronted by the choice of two values. The first is the value of life in a country free from corruption, shady relationships, and underhand dealings of members of parliament taking place on park benches or in cemeteries. The second value is the right to live in a country where the public authorities do not set traps for people, nor tempt them and do not listen in on them without good reason, nor lock them up in temporary detention to extract confessions. Probably both values can be protected by the Polish courts, but in the case of Beata Sawicka they were on a collision course.  The Court cannot, as Mr. Domagalski would like, hide behind the lack of direct guidance from the legislature. It must apply the values protected by the Constitution directly and is obliged to do this by art. 178 par. 3 of the Constitution.  The court must choose one of these values and give it priority over the second.  We can discuss which value is more important in Poland in 2013. There is no single, correct answer. However, let us not cover up the problem with the argument of the lack of law provision. There are many such provisions, with an entire chapter in the Constitution on civil rights.

            The Polish courts do not enjoy the highest standing. For historical reasons, they are in a position far removed from that of the English, American or even German courts. Polish judges are afraid to adjudicate, and hide behind the regulations as a shield against bolder steps where decisions have to be made contrary to established frameworks or in the name of justice, against the linguistic interpretation of the provision.  Perhaps they are right. Whenever they make bolder decisions, there is a chorus of critics attacking them through the media from all sides. Usually, however, those who shout the loudest are the judges in their own matters. We are not threatened by a Republic of judges. We are threatened by a paralysis of the judiciary.

A short ‘historical background”. In the quite recent practice the parties signed a cooperation agreement along with a trade conditions one. These conditions were updated annually with a wide catalogue of payments paid to the retail chain. These charges were referred to as fees for marketing services, promotional budget, bonuses, discounts, etc. They sometimes reached even 40% of the value of the goods.  This practice has become widespread.       

In 2002, the Act Unfair Competition was amended (The act of 16 April 1993 on counteraction of unfair competition, consolidated text Journal of Laws 153/2003 item 153, The “Act”).  Then, “charging of other fees than the trade margin for in-store sales” (known colloquially as “shelf fees”¹ was penalized as an act of unfair competition.  It became possible to claim the recovery of unlawful fees.² This gave rise to a number of lawsuits throughout the country.    The existing, often long-term contractors began to question the relevant contractual provisions, and the retail networks began to lose cases on a large scale. 

Strong case law exists in respect to shelf payments, and the courts have strengthened their consistent and uniform line so far.  A priori presumption of the illegality of shelf fees exists, so the burden of proof lies with the defendant.   It is the network that has to show that the collection of fees has a specific legal basis, the services were actually performed and charged for and that the remuneration for the above was the equivalent.³ Simultaneously, the catalog of fees adopted by the courts as illicit is very broad and yet still open. 

It is this wave of court losses that is forcing retail chains to change their co-operation with suppliers.  On the one hand, the shelf fees, such as existed a few years ago, no longer exist.  Does this mean that the controversial fees have disappeared completely?  On the other hand, in the fierce battle for customers, low prices of products is the best weapon.   It may turn out to be a pyrrhic victory for suppliers. 

There are a growing number of opinions that in fact the practice of Polish courts is a kind of “pouring the baby out with the bathwater.” Should a different interpretation of the provision in question not be considered, or even changes to it?  Proponents of this position cite two main arguments. 

First, shelf fees do not have to be by definition illegal. The provision in this regard should be more precise and the catalog of charges limited. 

Second, any regulations interfering with the functioning of businesses and market should be supported primarily by economic analysis. And they do not indicate that  the charging of shelf fees was in fact an act of discrimination against smaller players and obstruction of access to the market.   Moreover, many are of the opinion that shelf fees could be beneficial for both parties (e.g. risk sharing, optimization of profit). What should be kept in mind, in particular, are the European Commission’s guidelines on vertical restraints (OJ. EU 2010 / C 130 of 19.05.2010).  The Commission points out here that the so-called access charges paid in advance can in many cases contribute, among other things, to the efficient allocation of space for new products on the shelves.   It also argues that the guidelines for shelf fees apply only to companies with more than 30%. market share.  

For these reasons, the increasing calls should not be ignored advocating verification of the provisions of the Act, or even limitation of the regulations in this respect only to the area of public law, namely inclusion of it in the Act on Competition and Consumer Protection (the act of 16 February 2007 Journal of Laws no 50/2007, item. 331, as amended). 

The first major change is stating that the perpetrator abused its rights or failed to meet its obligations. This is an important detail; however, similar decisions were also made pursuant to the revoked art. 585 of the Commercial Companies Code by way of admitting that it is difficult to imagine correct management, compliant with standards, which is detrimental to the company at the same time. The second change was described as crucial: instead of “acting to the detriment of a company” we have “causing a direct threat of damage”. In penal law, such crime has been specified as specific exposure to danger. The judicial decisions in this respect are reached as it refers to causing a threat of … a disaster or death or loss of health as a result of a scuffle or battery². The third change comprises introduction of a quantitative limit –the perpetrator has to expose the business entity to considerable damage, i.e. exceeding PLN 200,000.

The entire danger for management lies in the term “threat”. The reality, specific nature or validity of a threat are value-conveying terms. Inasmuch as leaving smoldering embers in a forest on a hot summer day is likely to cause a fire, the conclusion of an agreement with a contractor whose credibility has not been fully checked, has a totally different overtone. I have the impression that the stubbornness to penalize actions in business transactions, which are often an expression of the assumption of business risk, arises mainly from the weakness of civil law mechanisms of protecting business entities against abuses of persons managing them. Unfortunately, such regulatory motivation almost always exposes penal law to lack of clarity and lack of justice.

Curiously, that dispute has a lot in common with Poland. Its factual background strongly resembles the problems that arose in our country some time ago with respect to so-called forex currency option contracts. The factual pattern in the Sri Lankan case was a casebook model. A state-owned company, apparently strongly influenced by the government administration, entered into an oil-prices hedging contract with an international bank. Throughout the period preceding the conclusion of the contract, oil prices were on the rise for a considerable period of time and remained at high levels. The prevailing views of analysts at the time pointed to a considerable risk of a further uptick in prices. Countering that risk by executing a hedging agreement, made by a state-owned company dependent on the import of oil, seemed ex ante to be a justified and reasonable solution. After the contract was concluded, prices indeed kept rising for a short time, but soon the market trend reversed, and oil prices plummeted. This unforeseeable price movement caused, in accordance with the terms of the hedging agreement, the contractual liability of a Sri Lankan company towards the bank in excess of USD 60 million. The amount at stake exceeded multiple times the maximum of the bank’s contractual exposure towards the company under the hedging agreement, which would have arisen had the oil prices continued to rise.

Against this backdrop, the Sri Lankan authorities entered the stage. They declared, among other things, that the contract had been entered into by the company ultra vires, and that the company was induced into an error and inadequately informed by the bank with respect to the risk related to the transaction. These arguments sound surprisingly familiar to the context of the Polish forex currency options disputes. They were typical claims raised by the Polish business entities in their disputes with the banks. For the sake of clarity: reference is made to disputes which arose from forex currency options contracts, entered into in Poland from 2007 to 2009. Under these contracts, entered into on a mass scale, Polish business entities sold forex currency call options to commercial banks in consideration for a premium. As the worldwide financial crisis violently depreciated the Polish currency within a relatively short time, the economic foundations of these call options changed dramatically, bringing a number of these entities to the brink of bankruptcy.

The essential difference between the Polish matters and the Sri Lankan disputes boils down to the reaction of the state. In the case of the Polish forex currency options contracts, the authorities also contemplated an intervention, including by way of a legislative act, aimed to neutralize the contractual rights of the banks under the option agreements. This was to be achieved, under the most drastic scenario, by way of automatic annulment of the existing option contracts, by operation of law. These plans were never put into realization. And rightly so, as they would have openly clashed with the constitutional values of the Republic of Poland, and would have equally triggered the liability of the State Treasury, including on the basis of investment protection treaties.

In the case of Sri Lanka, an intervention of the public authorities occurred. It was carried out primarily by the central bank, which prohibited the company to execute a foreign transfer of funds aiming to settle its contractual liabilities under the hedging agreement. These measures were also supported by the Supreme Court, which at some point in time suspended the payments under the hedging agreement. These measures were accompanied by an investigation, aimed at determining the legal responsibility of members of the company’s bodies who were engaged in the execution of the hedging agreement. The arbitral tribunal noted in that respect that the actions of the state bodies lacked transparency, or an express and clear legal basis for the measures applied by the central bank. Decisions concerning the investor’s rights were taken without the central bank’s participation, in non-adversarial proceedings, and without regard for the investor’s position.

The arbitral award,¹ which by a majority allowed the investor’s claims, merits attention for three reasons. First, the majority found that the hedging agreement was an investment in the sense of both the applicable bilateral investment treaties and the ICSID Convention. The issue is by no means clear. A hedging agreement leaves no tangible footprint in the territory of the host state. If the hedging agreement has a place of performance, it is most likely in the international financial markets. Nonetheless, the majority held that decisive importance should be attached to the place where the hedging agreement produced its economic effect, in this case, the limitation of risk related to the volatility of oil prices for the economy of Sri Lanka. It is also far from obvious that a hedging agreement shows other characteristics usually required by international law from an investment, such as the capital commitment of the investor, duration, or (most controversial), contribution to the development of the host state’s economy. This part of the award was addressed in the dissenting opinion of one of the arbitrators.

The second interesting question related to the discussion of the arbitral tribunal concerns the attribution of the acts of the state-owned company to the state itself. The arbitral tribunal took the most liberal approach to this issue, nota bene stating obiter dicta that the state-owned company having separate legal personality can be considered an organ of the state. The decision is exceptional. The arbitral tribunal also held that the company acted under instructions of state organs, and hence attribution of its acts to Sri Lanka was possible both under Article 4 and under Article 8 of the ILC Articles on State Responsibility. This ruling provokes certain critical comments. Firstly, the finding did not have a decisive impact on the existence of the international responsibility of Sri Lanka, since that responsibility was established in relation to bodies other than the company (the central bank and the courts). Thus, the determination was redundant. Secondly, the award lacks a sufficient justification of the reasons that guided the majority of the Tribunal in its findings. It might be that the decision is the correct one due to the specific facts of the case. However, these facts were not fully explained in the award, and so the usefulness of the decision for future cases may be limited.

The third interesting point concerned the determination by the majority that the actions of the Sri Lankan state amounted to a de facto expropriation of the investment. The Tribunal found for an expropriation, even though the bank’s contractual claims under the hedging agreement were not extinct and could be enforced by the method laid down in the hedging agreement, i.e. in an arbitration in England, on the basis of English law. The finding of an expropriation in such a scenario seems to run against the essentially uniform case-line of arbitral tribunals, which have held that there is no expropriation as long as the investor remains entitled to pursue its contractual claims before the usual forum (in litigation or arbitration). Apparently, the majority of the tribunal in the Deutsche Bank v. Sri Lankacase held that the ruling of an expropriation is justified by the fact that in accordance with the central bank’s decision, the Sri-Lankan company could never have voluntarily repaid its contractual debt, even if awarded by a foreign court or an international tribunal. On the other hand, the Tribunal took into account the fact that the company had no assets outside Sri Lanka. This finding was criticized by one of the arbitrators, who in a dissenting opinion raised that the finding of expropriation was premature, and that the ruling that the company had no assets outside of Sri Lanka was speculative.

One of the most famous works of the late Polish movie director, Krzysztof Kieślowski, the Blind Chance, explains the importance of pure coincidence in the entire life of a person. One single event can change the fate of people and the world. In this case, a different decision of the Polish authorities in 2009 with respect to the forex currency option contracts could have made Poland now look very similar to Sri Lanka. Except for sun and sand.

Together with my colleague, Dr. Rafał Morek, we staged a presentation titled “Dispute Avoidance and Resolution under FIDIC Rules and Procedure: Polish Experience”. We talked about the term for submission of contractor’s claims and about its loss as a result of breach of the 28-day deadline under item 20.1 of the FIDIC model. We discussed Dispute Adjudication Boards (“DAB”) and arbitration. Unfortunately, we could neither boast of the development of alternative methods for avoidance of conflicts in the Polish construction practice, nor even of the wide application of arbitration in Poland.

Right before our presentation, we were able to listen to a presentation on construction disputes in Great Britain. The status of the relationships between the contracting authority and the contractors there was similar to what we have in Poland nowadays: disputes, lack of payment to subcontractors, bankruptcy in the construction sector, delays in the implementation of contracts. As a response to this phenomenon, a special act on construction works contracts (“The Housing Grants, Construction and Regeneration Act 1996”) was adopted. Bear in mind that in England there is no civil code, neither a general part nor a detailed one regarding contract law, and the adoption of the act on one type of agreement is an absolute exception. A special Construction Court was established. And most of all, a radical reform of ADR was introduced comprising an obligation to notify claims during the construction to FIDIC’s equivalent – DAB – or otherwise losing the claim. This authority must make a decision within 28 days (sic!) of submission of a claim. It resulted in a situation whereby construction disputes have practically been eliminated in England.

 England, Poland, Ukraine. Three totally different countries. Unfortunately, in terms of the culture of dispute resolution we are much closer to our Ukrainian brothers. It seems that the only difference is our deep belief that there is no reason not to apply foreign experiences in the Polish practice. I had an impression, perhaps incorrectly, that our hosts from Kiev still think in the majority of cases: “it is impossible to do this here”. I wish them (and us) faith and persistence. FIDIC_Kiev_Conference_20_Feb_2013

The civil procedure code stipulates suspension of the proceedings ex officio in the event of declaring a plaintiff’s bankruptcy or bankruptcy with an option to conclude a composition agreement of any of the parties if the party has been deprived of receivership. The purpose of suspension is to make it possible for the receiver or administrator to join the proceedings. However, contrary to the literal meaning of the act, it does not have to join proceedings. If this is not required, the proceedings should be instituted by the bankrupt itself, when he was a defendant. When the bankrupt is a plaintiff, the suit which the receiver or administrator has not been interested in, is subject to dismissal unless its subject will be regarded as excluded from the bankruptcy estate. Then the proceedings are pending with the participation of the bankrupt, which, however, can lose its legal existence as a result of termination of the bankruptcy proceedings (legal persons including companies). Moreover, the bankruptcy and restructuring law has also encountered the receiver’s (administrator’s) withdrawal from the proceedings, which can have the effects described herein even after the lapse of a long period time.

Once bankruptcy with the option to conclude a composition agreement has been declared, and the bankrupt has not been deprived of the right to administration, the proceedings are continued, although the court supervisor appointed in such situations must participate in the proceedings having the status of a so-called outside intervener without approval of which a bankrupt can neither admit a claim whilst being a defendant, nor waive the claim whilst being a plaintiff, or even admit facts if it was important for the adjudication. For a claimant “doubling” the number of the opposing parties in the proceedings, it usually means more procedural problems and further extension of the proceedings.

In the event of the liquidation bankruptcy of a defendant, the proceedings must be discontinued and the plaintiff is directed to institutes its claims in the bankruptcy proceedings. However, in such situation the proceedings can face “life after life”. This happens when the institution of claims has been dismissed or the bankruptcy proceedings are discontinued or changed into  proceedings with an option to conclude a composition agreement. A suit can then be brought again with retroactive effect – resumption of the proceedings formerly discontinued as a result of declaring the defendant’s liquidation bankruptcy. A similar situation can theoretically happen after termination of the bankruptcy proceedings but only if it is not followed by a loss of legal existence of a party (and this is the case most often in the bankruptcy of legal persons and commercial partnerships).

If the above description appears to be complicated, it correctly reflects the complexity of the legal status being at the junction of the Polish civil law procedure and bankruptcy law. For those who dislike complicated descriptions, I recommend the table below.