Forced conciliation | In Principle

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Forced conciliation

Chapter X of the draft new Public Procurement Law (Art. 620–655) obliges the contracting authority and the contractor to conduct a mandatory conciliation procedure. While the very idea of settlement of disputes deserves full support, the proposed detailed solutions raise serious doubts under the Polish Constitution and EU law.

General assumptions

According to Art. 620(1) of the draft, the contracting authority or a contractor in a particular category of disputes will be required to carry out a new, separate dispute resolution procedure, referred to as conciliation proceedings. Therefore, subcontractors will be excluded from this procedure, as well as those suing the investor as an entity jointly and severally liable (Art. 6471 §5 of the Civil Procedure Code). This regulation is to cover large contracts (worth more than EUR 10 million, and for construction works more than EUR 20 million) and all contracts financed from EU funds, and additionally, only those where the value of the claim exceeds PLN 1 million. As stated in Art. 620(2), before the National Appeal Chamber examines the application—as it is before the chamber that the new proceedings are to be conducted—court proceedings will be inadmissible. However, it will be possible to apply for interim relief, but in such a case, instead of the deadline for filing a statement of claim, the court will set a deadline for submitting a conciliation application.

The right idea

It is very good that the proponents noticed the problem that in the public procurement sector, settlement of disputes does not work. Contracting authorities do not want to settle disputes for a number of reasons. Arguments arising from public finance discipline are invoked. Fear of concluding a settlement also stems from the fact that public officials do not want to take responsibility for the concessions which are a necessary element of any settlement agreement (Art. 917 of the Civil Code). As a result, it can be concluded that there are hardly any settlements in public procurement cases at the pre-litigation stage. Settlements concluded in the first instance of litigation are also the exception. Usually the contracting authority prefers to await a ruling, especially in such cases as mitigation of contractual penalties, where the ruling determines to what extent the calculated contractual penalty may be reduced. Contracting authorities are afraid to take responsibility for concessions in a settlement and this undoubtedly needs to change.

From one extreme to another

However, an attempt to change the contracting authorities’ mentality, and thus increase the percentage of disputes that are settled, should nevertheless be done through small steps. It would be enough to start by introducing a regulation that only encourages contracting authorities to reach a settlement, indicating that concluding a good settlement is always a better solution for everyone than a court dispute. But under the proposed solution, an institution that has been almost completely absent from public procurement practice is suddenly to become a dominant, basic one. This is not how the practice of settlement of disputes is shaped. A system of incentives and assistance should be created for contracting authorities to reach this path on their own. Nobody likes to act under coercion, and the imposition of will by the state on individuals is an expression of the weakness of the state, which apparently cannot find any other way to reach otherwise very socially desirable results.

Time and costs

Conciliation proceedings are to carry a fee. The amount of the fees is not specified in the bill, but is to be set by an executive regulation of the Prime Minister (Art. 655). These are not the only costs incurred in the case, as the draft also provides for costs of legal representation, determination of the legitimacy of costs to be reimbursed by the other party, and advances against payment of expenses. Therefore, it will certainly be an expensive proceeding, whose costs will not differ much from the costs of a typical court proceeding, taking into account the high formal requirements for the application and the entire proceeding. Sometimes it will be even more expensive, because similar to arbitration proceedings, and unlike in the common courts, a defence of setoff will also be subject to a fee (Art. 637(3)). There are great constitutional doubts about leaving the determination of the fee schedule in the hands of the executive, and if an application is not filed and the fee paid, court proceedings are to be excluded.

The conciliation procedure will also be lengthy. The deadlines set in the draft, even excluding the time for circulation of correspondence and the chamber’s reaction to the pleadings submitted by the parties, are not short: at least 14 days to cure any defects in the application (although this element will not occur in every case, Art. 630(1)), the potential time needed to verify the amount in dispute (Art. 631), 14 days to reply to a request (Art. 634), time for a mutual request (Art. 636), which may be submitted even later than the first conciliation meeting (Art. 636(2)), and the time needed to verify the formalities and submit a reply. With this in the background, it is completely unrealistic to assume that without the consent of both parties, the proceedings may not last longer than 6 months from filing of the application (Art. 638(1)), under pain of discontinuance of the proceedings (Art. 643(1)(4). On top of that, under Art. 653(1), experts are also expected to participate in the proceedings. Therefore, the party will bear the costs of the application, attorneys’ fees and experts’ fees, and if the proceeding is not concluded within six months it will be discontinued, not bringing any benefits to the applicant but only exposing it to high costs and a waste of time.

Interestingly, the draft does not propose a deadline for the chamber to draw up a proposed settlement agreement after the conclusion of the conciliation procedure (Art. 647). This means that the parties will have to humbly wait weeks or even months for this document. From the receipt of the draft settlement, each party has 30 days to decide whether or not to agree to the settlement, and to submit a request to supplement the draft with any requests omitted by the conciliators. If the draft settlement is approved, the settlement is to be concluded before the president of the National Appeal Chamber (Art. 650) and is to be enforceable (Art. 651). In the parties cannot agree on a settlement, the proceedings will be terminated (Art. 643(1)(3)).

The right to a fair trial endangered

In total, the real duration of conciliation proceedings, if both parties do not agree to an extension beyond the 6-month deadline provided for in the draft, from submission of the application until the end of the proceedings, will be close to a year. And if the parties agree to an extension, there are no deadlines. The obligatory nature of the procedure and the fees involved threaten the constitutionally guaranteed right to a fair trial, notwithstanding the proponents’ claim to the contrary in the justification for the proposal (p. 115).

The Mediation Directive (2008/52/EC), referred to in the explanatory memorandum, indeed indicates that the member states may introduce compulsory mediation, but only “provided that such legislation does not prevent the parties from exercising their right of access to the judicial system” (Art. 5(2)). But this proposal would hinder such access, because it introduces a very formal and costly mediation procedure, lasting for several months and requiring time and effort, but not governed by the principle of proportionality, as it should be.

A party that spends funds for mandatory conciliation proceedings may not have funds later on for court proceedings, and in this sense the limitation of the right to a fair trial by the proposed regulation is evident. Also, depriving a party of the right to a fair trial for a period of almost a year, in conditions of an often pathological court delay in civil cases, violates the principle of proportionality, particularly considering that the culture of settling disputes is still not widespread in Poland and many of these proceedings will not lead to a settlement. Therefore, it may be expected that if this regulation is passed, it will be subject to review by the Constitutional Tribunal or, more likely, because this issue is covered by regulations of Community law, by the Court of Justice of the European Union.

Dr Marcin Lemkowski, adwokat, Dispute Resolution & Arbitration practice, Wardyński and Partners