Jan Ciećwierz: "Peace through strength" is good business policy | In Principle

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Jan Ciećwierz: "Peace through strength" is good business policy

An interview with Jan Ciećwierz, a partner at Wardyński & Partners who co-heads the Dispute Resolution & Arbitration practice, about the need to secure trade receivables.

Litigation Portal: Why should trade receivables be secured?

Jan Ciećwierz: In a perfect world it would not be necessary, and the principles of good faith and fair dealing would suffice. Unfortunately, businesses do not always live up to these principles in their commercial dealings. This is not necessarily a question of honesty, and in today’s economy may often be due to financial problems. Therefore, in dealings with counterparties, a rational and scrupulous business should take certain minimum steps to help insure its own economic success.

Should this be done when entering into a contract?

Even earlier. A basic requirement is to identify the other party correctly, particularly if it is a sole trader. Without knowing the residential address of a sole trader, it is difficult even to draft a claim, because in Poland such an individual must be sued at his or her residential address, not the sole trader’s business address. Another essential aspect when dealing with businesses operated by individuals is their civil status: Is the person married? If so, do the spouses have a joint marital estate? Or do they have a spousal agreement in place under which claims should be enforced against separate property? These are basic facts to be determined before signing the contract.

What terms need to be included in the contract itself?

The contract should be drafted to facilitate enforcement of any claims that may arise under the contract. For example, issues of acceptance of invoices and acknowledgement of accounts should be addressed. In this respect, it is particularly important to assure that the contracting parties are properly represented—in other words, that the person accepting the invoice or acknowledging the account is authorised to do so on behalf of the business entity he or she supposedly represents. If these aspects are addressed properly, a claim may be pursued using a fast-track order for payment procedure rather than a full judicial proceeding, which could stretch out for years. Ordinary civil proceedings last so long not so much because of the complexity of the defences that the debtor may raise, but because of the capacity of the Polish judicial system: the state has simply not provided optimal working conditions for judges. This means that cases often are not assigned to a judge’s docket until 6 to 8 months after the statement of claim is filed.

Some of the main forms for securing a party’s interests in a contractual relationship include obtaining a guarantee for payment of monetary obligations, or a bank guarantee, as well as a clause prohibiting setoff. Other forms of security include a promissory note, a confession of judgment (in which the debtor submits to execution under a notary deed), or trade credit. These instruments provide the creditor some degree of control over the debtor’s solvency.

A separate issue is securing future claims by analysing the debtor’s assets and its capacity to incur and secure obligations. In this respect, lawyers sometimes work alongside economic intelligence services, who help determine the debtor’s financial situation. Later, potential claims should be secured within a judicial proceeding, or even before a claim is filed. This often requires prompt, urgent measures in order to seize specific assets or freeze funds in bank accounts. Here, the lawyer plays an essential role.

Even when it trusts the other party, a careful business should be prepared for difficulties that may arise in its commercial dealings. The Roman maxim Si vis pacem, para bellum—or, in modern parlance, to seek “peace through strength”—applies not just in international relations, but also in commerce. If claims are properly secured, there is a better chance of avoiding litigation.

Interview conducted by Justyna Zandberg-Malec