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

Why? Very long time to enforce a simple contract

Why? Courts are viewed as slow

Why? Courts are viewed as weak

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).

Inflow of cases per inhabitants in

Inflow of cases by jurisdiction in

Cases concluded and backlog 1999 – 2004

Judicial sector expenditure in Poland, Total 2.6 billion PLN 0.6 billion USD 3.3 billion PLN 0.8 billion USD 3.7 billion PLN 1.0 billion USD % of GDP 0.3%0.4%n/a % of public expenditure 2.9 %3.3%3.4% % expenditure for personnel 67%61%60% % expenditure for property investment 2.8%5.9 %7.3% Source: Ministry of Finance PLN: Polish zloty; USD: American dollar

Size of judicial sector in Poland and some European countries first instance courts per 1,000,000 inhabitants served by one first instance court number of staff per 100,000 number of staff per court Judgessupport staffjudgescourt staff Poland 9113, Netherlands 3800, Austria 2560, Slovakia , Hungary , Source: CEPEJ, European Judicial Systems (2002).

Court organisation in Poland Three-tier court system: 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.

Criminal, civil, commercial, registrations cases by courts in 2003

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).

Inflow of cases by procedures in district (commercial) courts, 1999–2004

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

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.

How?

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

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

Key Findings  Informed Contracting  Breach of Contract  Legal Services  Courts  Bailiffs

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

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 Renegotiating contract Seeking other financing Seeking other financing

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 concerns about reputation and relations  Lawyers meet the demand but the cost of services is an issue

Courts  Demand for court services is among the highest in the region Businesses file lawsuits Businesses file lawsuits to buy timeto buy time for tax purposesfor tax purposes as a matter of principle ( to uphold ethics)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 Misplaced functions and weak barriers to access Cheap labor drives productivity Cheap labor drives productivity  Inconsistent court performance blurs the picture  Inflexible organization and obsolete management are behind the court problems Absence of performance management Absence of performance management Weak central management Weak central management Lack of investments into technology and innovation Lack of investments into technology and innovation Obsolete business organization and processes Obsolete business organization and processes Overly formalistic procedural designs Overly formalistic procedural designs

Enforcement Agents  Sub-optimal Combination of Public Service Aspects & Market Elements Significant Entrance Barriers Significant Entrance Barriers Secured position and inflow of cases Secured position and inflow of cases Private- business organization Private- business organization Price regulation Price regulation Deficient Supervision Deficient Supervision  Minimal Competition Price as a factor : fixed fee with little possibility of deviation paid by third party 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 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 Information, easy transfer of assets

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