Poland: Contract EnforcementPoland: Contract Enforcement

World BankWorld BankLuba BeardsleyLuba Beardsley

National Bank of PolandNational Bank of PolandJaroslaw BeldowskiJaroslaw Beldowski

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

Why?Why?

Courts are viewed as slow

Why?Why?

Courts are viewed as weak

Public supportPublic support

In accordance with the Public Opinion Polls on In accordance with the Public Opinion Polls on courts conducted from 1998 up to the present timecourts conducted from 1998 up to the present time

negative opinionsnegative opinions about courts are quite stable – about courts are quite stable – 60%60% (50% in 1998) (50% in 1998)

as well as as well as positive onespositive ones – – 20%20% (30% in 1998). (30% in 1998).

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

O verall inflow per 100,000 inhabitants, 1994–2003

0

5,000

10,000

15,000

20,000

25,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Inflow of cases by jurisdiction Inflow of cases by jurisdiction in 1994 - 2004in 1994 - 2004

Inflow by jurisdiction, 1994=100

0

100

200

300

400

500

600

700

800

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

cr iminal civi l

land and mor tgage labor

social pr otection commer cial

commer cial r egistr ations f ami ly

Cases concluded and backlog Cases concluded and backlog 1999 – 20041999 – 2004

0

2000

4000

6000

8000

10000

12000

1999 2000 2001 2002 2003 2004

inflow

cases concluded

backlog

Judicial sector expenditure Judicial sector expenditure in Poland, 2002-2004in Poland, 2002-2004

2002 2003 2004

Total 2.6 billion PLN0.6 billion USD

3.3 billion PLN0.8 billion USD

3.7 billion PLN1.0 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 FinancePLN: Polish zloty; USD: American dollar

Size of Size of jjuudicialdicial ssector in Poland ector in Poland and and ssome European ome European ccountriesountries

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

Judges support staff judges court staff

Poland 9 113,442 20 59 22.4 65.3

Netherlands 3 800,000 11 31 64.6 179.1

Austria 25 60,000 1 67 9.8 30.7

Slovakia 10.2 97,803 23 67 18.1 53.1

Hungary 10.9 91,369 27 75 17.8 48.8

Source: CEPEJ, European Judicial Systems (2002).

Court organisation in PolandCourt organisation in Poland

Three-tier court system:Three-tier court system:- 310 district courts (sad rejonowy)310 district courts (sad rejonowy)- 43 regional courts (sad okregowy)43 regional courts (sad okregowy)- 11 appellate courts (sad apelacyjny)11 appellate courts (sad apelacyjny)

The courts are divided into several The courts are divided into several divisions, e.g. 120 district commercial divisions, e.g. 120 district commercial courts, 300 land registration courts, courts, 300 land registration courts,

21 business register courts and 21 business register courts and

10 pledge register courts.10 pledge register courts.

Criminal, Criminal, ccivil, ivil, ccommercial, ommercial, rregistrations egistrations ccases by ases by ccourtsourts

inin 2003 2003

0% 20% 40% 60% 80% 100%

criminal

civil

commercial

registrations

District Courts Regional Courts Courts of Appeal

Commercial procedures at the Commercial procedures at the commercial courtscommercial courts

Three basic types of commercial procedures Three basic types of commercial procedures (disputed claims): trial (regular), simplified.(disputed claims): trial (regular), simplified.

Accelerated proceedings (undisputed claims):Accelerated proceedings (undisputed claims):- admonition orders (up to around 3000 USD),admonition orders (up to around 3000 USD),- payment orders.payment orders.

Registrations (seperate procedures).Registrations (seperate procedures).

Inflow of Inflow of ccases by ases by pproceduresrocedures in in ddistrict istrict (c(commercialommercial)) ccourts, ourts,

1999–20041999–2004

0 100,000 200,000 300,000 400,000

1999

2000

2001

2002

2003

2004

Trial Com Sim Com Sum Judg

Processing time in district Processing time in district courts (commercial cases)courts (commercial cases)

1999 – 2004, in months1999 – 2004, in monthsProcessing time in district courts, commercial cases,

1999–2004, in months

01

234

56

1999 2000 2001 2002 2003 2004

t rial t rial simplified business regist rat ion pledge regist rat ion

Other factors affecting Other factors affecting contractual enforcement in contractual enforcement in

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

How?How?

ProductsProducts

In cooperation with the National Bank of In cooperation with the National Bank of Poland:Poland:

The World Bank Report: The World Bank Report: Legal Barriers to Legal Barriers to Contract Enforcement Contract Enforcement

The EBRD Report: The EBRD Report: The Impact of the The Impact of the Legal Framework on the Secured Credit Legal Framework on the Secured Credit Market Market

Legal Barriers to Contract Legal Barriers to Contract Enforcement Enforcement

ContractsContracts InformationInformation

• AccessibilityAccessibility• Balance between personal data protection & information flowBalance between personal data protection & information flow

Legal ServicesLegal Services• Demand (during contract negotiation & conclusion, when the contract is not honored Demand (during contract negotiation & conclusion, when the contract is not honored

and impact on voluntarily compliance)and impact on voluntarily compliance)• Supply (accessibility, costs & quality of service)Supply (accessibility, costs & quality of service)

Debt Collecting IndustryDebt Collecting Industry DisputesDisputes

Commercial CourtsCommercial Courts• Actual performanceActual performance• Factors contributing to under-performanceFactors contributing to under-performance

Alternative Dispute ResolutionAlternative Dispute Resolution• Constraints to utilizationConstraints to utilization

Enforcement of JudgmentsEnforcement of Judgments BailiffsBailiffs

• Performance Performance • Factors contributing to under-performanceFactors contributing to under-performance

Key FindingsKey Findings

Informed ContractingInformed Contracting Breach of ContractBreach of Contract Legal ServicesLegal Services CourtsCourts BailiffsBailiffs

Informed ContractingInformed Contracting

Limited Access to Information Limited Access to Information Reliance on negativesReliance on negatives Mandatory notification of debtorMandatory notification of debtor Focus on individual consumersFocus on individual consumers

Personal Data are Protected at the Personal Data are Protected at the Expense of Information Flow and Well Expense of Information Flow and Well Functioning Credit SystemFunctioning Credit System

Breach of ContractBreach of Contract

Failure to pay, substandard goods/service Failure to pay, substandard goods/service and third party claims, trigger legal actionsand third party claims, trigger legal actions

At the same time business take other At the same time business take other actionsactions Renegotiating contractRenegotiating contract Seeking other financing Seeking other financing

Legal ServicesLegal Services

Lawyers are seen as the “fire brigade” to Lawyers are seen as the “fire brigade” to be called out only if things go wrongbe called out only if things go wrong

Use of lawyers does not increase Use of lawyers does not increase compliance with the contractcompliance with the contract concerns about reputation and relations concerns about reputation and relations

Lawyers meet the demand but the cost of Lawyers meet the demand but the cost of services is an issue services is an issue

CourtsCourts Demand for court services is among the highest in the region 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 Public expenditures and production in the justice sector are very high but do not translate into court performancehigh but do not translate into court performance

Misplaced functions and weak barriers to accessMisplaced functions and weak barriers to access Cheap labor drives productivityCheap labor drives productivity

Inconsistent court performance blurs the pictureInconsistent court performance blurs the picture Inflexible organization and obsolete management are behind the Inflexible organization and obsolete management are behind the

court problemscourt problems Absence of performance management Absence of performance management Weak central managementWeak 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 designsOverly formalistic procedural designs

Enforcement AgentsEnforcement Agents Sub-optimal Combination of Public Service Aspects & Market Sub-optimal Combination of Public Service Aspects & Market

Elements Elements Significant Entrance BarriersSignificant Entrance Barriers Secured position and inflow of casesSecured position and inflow of cases Private- business organization Private- business organization Price regulation Price regulation Deficient Supervision Deficient Supervision

Minimal CompetitionMinimal Competition Price as a factor : fixed fee with little possibility of deviation paid by third Price as a factor : fixed fee with little possibility of deviation paid by third

partyparty Quality is not a factor: little information on performance and Quality is not a factor: little information on performance and

geographical monopoly of bailiffsgeographical monopoly of bailiffs High number of low-value or uncollectible debt and opaque High number of low-value or uncollectible debt and opaque

incentives of bailiffs to actincentives of bailiffs to act External constrains External constrains

Information, easy transfer of assetsInformation, easy transfer of assets

Future StepsFuture Steps

Currently the report is being discussed Currently the report is being discussed with the local experts and stakeholderswith the local experts and stakeholders

After the consultations, tAfter the consultations, the report will be he report will be released in released in JuneJune 2006 2006